The Effect of Environmental Pollution on Labor Employment：Evidence from the Policy of Environmental Protection Accountability System

Abstract

Employment is the greatest livelihood. At present, the number of unemployed people and the number of employed people increase simultaneously, so we need to seek effective ways to reduce the unemployment rate in the future. Since the employment situation is directly related to major people’s livelihood and development issues such as public income and social stability, researches on the factors influencing labor employment is growing. The existing literature studies from the perspectives of education, wages, household registration, population structure and so on. However, it pays less attention to the effect of environmental pollution on labor employment and neglects the endogeneity of environmental pollution. More importantly, the answer to this question is conducive to clarifying the employment loss effect of environmental pollution. This provides scientific basis and reference for evaluating the social cost of environmental pollution and designing optimal environmental policies. To address the endogeneity of environmental pollution, this paper uses the exogenous changes of SO2 emission between TCZ（Two Control Zones）cities and non-TCZ cities caused by the policy of the environmental protection accountability system in late 2005. Based on the panel data of 285 cities in China from 2003 to 2013, the study identifies the effect of SO2 emissions on labor employment through employing the instrumental variable method and the difference-in-differences method. The results show that: （1）1% increase in SO2 emissions is associated with a decrease of 0.3345% in labor employment on average; （2）SO2 emissions significantly decrease the labor employment in secondary and tertiary industries, but increase labor employment in primary industry; （3）The inhibition effect of SO2 emissions on employment is more significant in sub samples of high economic development and high human capital; （4）The emission reduction effect of the environmental protection accountability system has the characteristics of cyclical fluctuation”, that is, the short-term effect is obvious, while the long-term effect is disappearing. In terms of the economic cost, the annual employment loss caused by SO2 emissions exceeds 2.5 million people, and the average annual economic loss is about 54 billion Yuan. More importantly, the economic cost is rising year by year. Compared with the existing literature, the marginal contributions of this paper mainly reflect in the following aspects: （1）This paper focuses on and addresses the endogeneity of environmental pollution indicators. In line with the ideas of Chen, et al.（2018）, it uses the exogenous changes of SO2 emission between TCZ cities and non-TCZ cities caused by the policy of the environmental protection accountability system in late 2005. Taking this as a breakthrough point, we further observe the impact of the exogenous changes on labor employment.（2）This paper provides evidence for the effect of environmental pollution on labor employment in developing countries, especially enriches the existing research in China. In general, the existing literature about the effects of environmental pollution on physical health, individual productivity and labor supply mostly focuses on developed countries. Although there are also studies on developing countries, such as Bangladesh, Mexico and Peru, the relevant studies are relatively scarce. Considering the differences in environmental risks and medical conditions among countries, and the fact that 92% of pollution-related deaths occur in low- and middle-income countries, the empirical conclusions of developed countries are not necessarily suitable for developing countries, which further highlights the need to seek evidence from developing countries.（3）This paper estimates the economic and social cost of environmental pollution, which has strong practical significance. Accurate identification of the social welfare effect of environmental pollution is crucial to the design of the optimal environmental policy. Too high or too low estimation will lead to too strict or too loose environmental policy intensity, which is not conducive to economic development. In view of this, this paper provides new evidence for the cost-benefit assessment of the environmental policy from the perspective of labor employment, and provides reference for the central government to make decisions on the strength of the environmental policy.