IZA World of Labor
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Environmental regulation and the labor market

Environmental regulations such as air quality standards can lead to notable improvements in ambient air quality and to related health benefits. But they impose additional production costs on firms and may reduce productivity, earnings, and employment, especially in sectors exposed to trade and intensive in labor. However, benefits are likely to outweigh the costs.

  • Air pollution and worker productivity

    Higher levels of air pollution reduce worker productivity, even when air quality is generally low

    Matthew Neidell, June 2017
    Environmental regulations are typically considered to be a drag on the economy. However, improved environmental quality may actually enhance productivity by creating a healthier workforce. Evidence suggests that improvements in air quality lead to improvements in worker productivity across a range of sectors, including agriculture, manufacturing, and the service sectors. These effects also arise at levels of air quality that are below pollution thresholds in countries with the highest levels of environmental regulation. The findings suggest a new approach for understanding the consequences of environmental regulations.
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  • Impacts of regulation on eco-innovation and job creation

    Do regulation-induced environmental innovations affect employment?

    Jens Horbach, June 2016
    New environmental technologies (environmental/eco-innovations) are often regarded as potential job creators—in addition to their positive effects on the environment. Environmental regulation may induce innovations that are accompanied by positive growth and employment effects. Recent empirical analyses show that the introduction of cleaner process innovations, rather than product-based ones, may also lead to higher employment. The rationale is that cleaner technologies lead to cost savings, which help to improve the competitiveness of firms, thereby inducing positive effects on demand.
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  • Environmental regulations and business decisions

    Environmental regulations impose costs on firms, affecting productivity and location but providing significant health benefits

    Wayne B. Gray, September 2015
    Environmental regulations raise production costs at regulated firms, though in most cases the costs are only a small fraction of a firm’s total costs. Productivity tends to fall, and firms may shift new investment and production to locations with less stringent regulation. However, environmental regulations have had enormous benefits in terms of lives saved and illnesses averted, especially through reductions in airborne particulates. The potential health gains may be even greater in developing countries, where pollution levels are high. The benefits to society from environmental regulation hence appear to be much larger than the costs of compliance.
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  • Environmental regulations and labor markets

    Balancing the benefits of environmental regulations for everyone and the costs to workers and firms

    Olivier Deschenes, July 2014
    Environmental regulations such as air quality standards can lead to notable improvements in ambient air quality and to related health benefits. 
But they impose additional production costs on firms and may reduce productivity, earnings, and employment, especially in sectors exposed to trade and intensive in labor. The limited empirical evidence suggests that the benefits are likely to outweigh 
the costs.
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  • Employment effects of green energy policies

    Does a switch in energy policy toward more renewable sources create or destroy jobs in an industrial country?

    Nico Pestel, July 2014
    Many industrial countries are replacing conventional power plants with renewable energy sources. Green energy policies might affect employment in different ways. A policy shift toward a low-carbon green economy may create new and additional “green jobs” in renewable energy sources and energy-efficiency technologies. However, this may potentially come with the crowding out of employment in other sectors. In addition, energy prices may increase owing to feed-in tariffs subsidizing renewables. The resulting burden may in turn stifle labor demand in industrial sectors and reduce the purchasing power of private households.
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  • Do responsible employers attract responsible employees?

    The cost of a firm’s commitment to CSR may be offset by its appeal to motivated employees who work harder for lower wages

    Karine Nyborg, May 2014
    Survey and register data indicate that many employees prefer a socially responsible employer and will accept a lower wage to achieve this. Laboratory experiments support the hypothesis that socially responsible groups are more productive than others, partly because they attract cooperative types, partly because initial cooperation is reinforced by group dynamics. Overall, the findings indicate corporate social responsibility may have cost advantages for firms.
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