Does stringent environmental regulation improve labor force employment? Evidence from China

Daqian Shi (), Chenxi Luo (), Kaixia Zhang () and Caiqi Bu ()
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Daqian Shi: Wuhan University of Technology
Chenxi Luo: Wuhan University of Technology
Kaixia Zhang: Southwestern University of Finance and Economics
Caiqi Bu: Southwest University of Political Science and Law

Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, 2025, vol. 27, issue 7, No 84, 17187-17213

Abstract: Abstract The political debate on the effect of environmental regulation on firms' labor demand has not reached a consistent conclusion. Using 2003–2012 Chinese industrial firms' data and time-varying DID approach, we discuss effects of daily penalty policy (DPP) as stringent environmental regulation on labor demand of firms. Results indicates that DPP reduces pollution emissions and positively affects firms' labor demand, especially for private, technology-intensive, older, and larger firms with more substantial employment effects. We further theoretically and empirically discuss the potential mechanisms: production effect, substitution effect, and innovation effect. In addition, we find that intensity of environmental governance by government, degree of labor market segmentation, and regional mobility have a significant moderating effect, especially for non-labor-intensive firms. Overall, this study shows that stringent environmental regulations characterized by strong enforcement and high violation costs can stimulate the innovation motivation of the regulated firms and thus promote the employment effect of the firms. Accordingly, the government should take the initiative to incorporate the social employment impact into the cost–benefit assessment system of regulations in the design of environmental regulations to achieve the win–win goals of pollution reduction and employment promotion and to utilize the effectiveness of stringent environmental regulations better.

Keywords: Environmental regulation; Labor demand; Daily penalty policy; Time-varying DID; J23; Q58 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10668-024-04630-5

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