Pollution Prevention Regulations and Jobs: A Pseudo-regression Discontinuity Model

Abstract

With the continuous environmental quality deterioration, Chinese government has implemented various environmental regulation policies which lead to a series of debates on environmental protection and economic development. One of the main arguments is that environmental regulations have greatly increased the production and operating cost of enterprises, and companies pursuing profit maximization have to reduce the scale of production, which may result in the loss of employment. Most of the existing studies relating to this point ignore the differences in the economic effect between environmental regulation types, mainly focusing on the impact of terminal environment regulations on employment. In fact, different types of environmental regulations have different mechanisms and economic effects. This paper turns the research perspective from terminal environment regulations to pollution prevention regulations. Specifically, we take the clean production policy at the provincial level in China from 2001 to 2005 as a policy shock, employ the method of pseudo-regression discontinuity model to examine the impact of pollution prevention regulations on jobs of enterprises in our country, and explore the micro-mechanism of its effect. The pseudo-regression discontinuity model is a combination of the differences-in-differences and regression discontinuity method, which can not only use the regression discontinuity method to define the treatment group and the control group, taking advantage of the quasi-natural experiment, but also utilize the differences-in-differences method to exclude the effect of unpredictable factors, solve the endogenous problem, and more effectively identify the impact of pollution prevention regulations on employment. The results of this paper show that, on the whole, pollution prevention regulations have played a positive role in promoting employment. In terms of the impact mechanism, pollution prevention regulations encourage enterprises to update their production equipments and enhance their production efficiency. Although the production and operation cost and the efficiency gains are both increased, the productivity improvement effect is greater than the cost increase effect, which eventually expands the scale of production and provides more jobs. At the same time, pollution prevention regulations have enabled a certain number of highly efficient enterprises to enter the market and survive, and the entire market has created more jobs. In addition, technological improvement has not produced a capital substitution for labor and avoided job losses. Finally, the positive impact of pollution prevention regulations mainly exists in heavily-polluting industries, large-scale enterprises, state-owned enterprises. After a series of validity tests, the empirical results of this paper are proved to be effective and robust. The conclusions of this paper have important policy implications. It is necessary to execute and deepen pollution prevention regulations, which will contribute to formulate reasonable environmental policies, effectively relieve employment pressure, and achieve environmental improvement and sustainable economic development. When formulating pollution prevention regulation policies, the government should consider the heterogeneity of industries and provide effective policy guidance for upgrading small-scale enterprises’ technology.