The employment effects of environmental regulation: Evidence from eleventh five-year plan in China

Abstract

The balance between environmental pollution control and full employment is of practical significance in developing countries. In this article, by taking Chinese total volume control of SO2 emissions in Eleventh Five-Year Plan as a quasi-natural experiment, we are able to identify the influence of environmental regulation on the labor demand of manufacturing enterprises. The findings show that the labor demand of pollution-intensive enterprises has fallen significantly as a result of environmental regulation, which means that the higher the intensity of environmental control, the less the labor demand. This indicates that China has a long way to go to achieve a win-win of emission reduction and full employment through the total volume control of pollutants. Interestingly, environmental regulation plays a significant negative role in corporate salaries, but a significant positive impact on per capita salaries. This may imply that although environmental regulation crowds out the labor demand to a certain degree, those affected are mainly low-skilled workers. Mechanism analysis reveals that the total volume control of pollutant has both job creation and job destruction effects on enterprises. Job creation is caused by technological innovation. As for job destruction, it comes from the reduction of production scale and the substitution of capital for manpower.