The Backward Incidence of Pollution Regulation on Workersâ€™ Wages: Empirical Evidence From Shanghai
In this study we examine the extent to which firms pass back the cost of pollution regulation to workers in the form of lower wages using a unique matched employer-employee dataset for Shanghai. The benefits and costs of pollution regulation in China are important topics to study as China comes under increasing pressure to move from a single-minded focus on energy-driven economic growth to a more balanced approach to economic growth. The benefits of such a shift, particularly in terms of health, are relatively well-studied, but the costs are less so. The hip-pocket effect of pollution regulation on workersâ€™ wages is particularly important given that it is likely to influence public support for a more balanced approach. Our main finding is that the reduction in average wages attributable to firms taking measures to control for pollution is between 13.8% and 18.8%, all things being equal.
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