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Environmental regulation and intra-firm wage inequality: A skill premium perspective

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  • Huang, Ruting
  • Duan, Shanshan
  • Li, Xiyan

Abstract

This paper investigates how firms respond to environmental regulations and their impact on the wage gap between skilled and unskilled labor. We employ a difference-in-difference-in-differences estimation strategy based on the dataset of prefecture-level SO2 emission reduction targets obtained by the Eleventh Five-Year Plan and firm-level datasets from 2002 to 2008. Results show that more polluted firms undergo a larger wage gap expansion between skilled and unskilled labor. This effect is pronounced among firms located in eastern or highly regulated regions, and those that are labor-intensive. Moreover, further analysis suggests that the gap results from relative wage adjustments rather than from extensive margin or relative migration patterns. Skill-biased technological change is pivotal in increasing the skill premium and bargaining power of skilled workers, driven by the technological biases embedded in environmental regulations. Overall, our findings shed light on environmental regulation policy to safeguard distributional equality.

Suggested Citation

  • Huang, Ruting & Duan, Shanshan & Li, Xiyan, 2025. "Environmental regulation and intra-firm wage inequality: A skill premium perspective," Energy Economics, Elsevier, vol. 148(C).
    • Handle: RePEc:eee:eneeco:v:148:y:2025:i:c:s0140988325005067
    DOI: 10.1016/j.eneco.2025.108679
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    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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