Environmental regulation instruments versus employment: Investigation based on the heterogeneity perspective

Abstract

China faces the dual challenges of environmental transition and employment growth. In the backdrop of the policy priority of “stabilizing employment”, mitigating environmental risk has become a key concern in academic and policy circles. Using panel data on manufacturing firms from 2011 to 2023, this study examines how command-and-control (ER-com), market-based (ER-mar), and voluntary (ER-vol) environmental regulations affect labor demand, focusing on the heterogeneity of regulatory instruments. Findings show ER-com suppresses employment, whereas ER-mar and ER-vol significantly increase it. Further, heterogeneity exists across external environments, firm characteristics, and job types: ER-com was more binding in the central and western regions, ER-vol stronger in labor-intensive and non-state-owned firms, and ER-mar more effective in competitive industries and smaller firms. ER-vol and ER-mar helped increase labor demand in production, sales, and technology positions, whereas ER-vol had no significant effect on employment in finance, human resources, administration, or customer service. Mechanism analysis showed that ER-com reduces employment through a resource crowding-out effect, whereas ER-mar and ER-vol operate through Michael Porter’s double-dividend effect. The results provide new evidence of how environmental policies can advance both green transition and employment growth.