Environmental regulation and manufacturing employment: Evidence from China's Eleventh Five-Year Plan

Abstract

This paper employs a difference-in-difference-in-differences (DDD) identification strategy to investigate the impact of environmental regulation on employment in the manufacturing sector in China, using the country's Eleventh Five-Year Plan (FYP) as a quasi-experiment. Our results indicate that the 11th FYP had a significant negative impact on firm employment, with every 10% increase in SO₂ reduction targets resulting in a 3.1% decrease in employment for firms in high-pollution industries. This corresponds to a reduction of approximately 9 people per firm. Our findings indicate that firms primarily reduce SO₂ emissions by reducing production levels and transitioning to cleaner energy sources. Additionally, we show that political promotion incentives played a role in driving the decline in employment. Heterogeneous tests reveal that the impact was more significant for private firms, SMEs and trade-exposed firms.