Abstract
This study examines the effects of strengthened environmental regulations on employment and labor productivity in the Korean manufacturing industry using panel data from 2004 to 2015. It divides the industry into environmental (green and non-green) and carbon dioxide emitting (polluting and non-polluting) sectors to investigate the industrial sector’s response heterogeneity to tightened regulations. We draw several conclusions on the basis of our empirical results. Firstly, environmental policies measured by enacting the LCGG (Low-carbon green growth) Act led to negative effects on labor productivity and employment in polluting industries. These negative effects show that the polluting industries take a higher cost burden because of the environmental policies as compared to the less-polluting industries; this finding is in line with previous studies in literature. Secondly, the green sector is experiencing higher labor productivity and employment as compared to the non-green sector after the tightened environmental regulations. Thirdly, the regulation-related negative effects anticipated in polluting industries are off-set if a firm is also included in the green sector which produces environment-related products. Hence, this result suggests that in terms of labor productivity and employment, it is possible that the manufacturing industry enables the achievement of sustainable development targets. While regulations negatively affect the performance of non-green firms by increasing the costs of highly contaminated ones, in the case of the green sector the regulations promote labor productivity and employment. This shows that a firm in the green sector which has high carbon dioxide emissions can adapt faster than its counterparts in a non-environmental sector in the polluting industry to the constraints imposed by strengthened environmental regulations. These empirical results imply that there will be labor reallocation from non-green to green sectors.
Highlights
IntroductionA frequently asked question is, do environmental regulations reduce a firm’s productivity and employment?
A frequently asked question is, do environmental regulations reduce a firm’s productivity and employment? While no strong conclusion has emerged, countries have strengthened their domestic and international environmental regulations
We use ln wageit which is the logarithm of average wages of employees when estimating the employment equation. μ j, θr, and λt are industry, region, and time fixed effects. These fixed effects capture the unobservable industry, region, and time-specific characteristics. ijrt is robust standard errors. This analysis focuses on examining how a plant responds to the adoption of new environmental regulations through the interaction term between the policy period’s indicator and industry variables
Summary
A frequently asked question is, do environmental regulations reduce a firm’s productivity and employment? While no strong conclusion has emerged, countries have strengthened their domestic and international environmental regulations. Studies on the effects of environmental regulations on a firm’s employment and productivity have increased [1], they mainly focus on the effects of polluting industries and do not consider the heterogeneity effects among different sectors. The debate on environmental regulations should be analyzed by distinguishing between green and non-green sectors. The two sectors are defined as industries producing goods and services related to the environment or resource recycling. One segment that is the focus of policy is the green sector. Environmental regulations can create employment or so-called green jobs in this sector; this is important as these industries are regarded as the drivers of sustainable development
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