Corporate pollution control strategies and labor demand: evidence from China’s manufacturing sector

The loss of employment is an essential issue that looms large in policy debates on pollution control. This paper estimates the impact of pollution reduction on labor demand in China’s manufacturing sector in the period 2001–2007. We conduct this research by using a sample with unbalanced panel data matched from two unique datasets of environmental statistics and an industrial economic database. Using the environmental performance of peer firms as the instrumental variable, our overall results show that improvements in environmental performance through reductions in $$ SO _2$$ S O 2 emissions and COD emissions led to a statistically significant reduction in employment. On average, a 1% reduction in $$ SO _2$$ S O 2 (COD) emissions causes a reduction in labor demand of approximately 0.018–0.019% (0.012–0.013%). We complement existing studies by carefully examining the impacts of firms’ different abatement strategies on labor demand. We find that pollution reduction through pollution prevention has substitutive effects on employment and that pollution reduction through pollution control at the end of the production process may require additional workers and thus has positive but not significant effects on labor demand. Finally, pollution control has heterogeneous effects on labor demand by different types of polluting firms (e.g., ownership, region, and industry).