The Costs of Blue Sky: The Distributional Effects of Environmental Regulation on Labor Demand in China

To cope with the stricter environmental regulation, manufacturing firms need to carry out pollution reduction activities and change their optimal production decisions, which may affect their labor demand. In this project, we estimate the impact of China’s nationwide target-based Key Cities for Air Pollution Control (KCAPC) policy on labor demands of manufacturing firms. We will provide causal estimation using firm-level panel data sets and an estimation technique pairing propensity score matching (PSM) with a difference-in-differences (DID) estimator. Most importantly, we will explore the heterogeneity impact of environmental regulation on employment from the perspectives of different firm types, genders, age, and skill levels of employees. The analysis of the heterogeneous employment impact of environmental regulation has theoretical and practical value. When discussing the long-term impact of environmental regulation on employment, it is often necessary to consider the re-employment of unemployed workers, while the difficulty of different types of workers is different. Based on our research, we can identify vulnerable groups and thus will alleviate social and gender inequality that may be caused by future environmental policies.