To green or to work: the labor demand reduction effect of green finance

Abstract

China's economic growth miracle of the past decades has been accompanied by a massive increase in fossil fuel consumption and severe environmental pollution. To control air pollution, China is implementing some green finance policies. Although they have improved the air quality, it is little known whether and how green finance affects the firm labor demand. Taking the 2012 Chinese green credit policy (GCP) as an exogenous setting, this paper adopts the difference-in-difference (DID) method to investigate the effect of green finance on firm labor demand based on A-share listed firms covering 2007-2017. We find that green finance had a significant negative impact on firm labor demand. Specifically, the high-polluting firms with stricter green finance constraints would reduce firm employment by 4.8%. This effect is especially prominent when firms are state-owned enterprises (SOEs) or workers are low-skilled employees. Further evidence indicates that there are the Compliance Cost Hypothesis and Porter Hypothesis in China. In these two effects, the effect of CCH dominates, so the overall effect of green finance is detrimental to corporate performance, which in turn leads to lower corporate employment. Our paper provides the real effect of green finance from the firm labor market. And this paper has strong policy recommendations that the government should reconcile the relationship between air pollution control and employment.