Employment implications of stricter pollution regulation in China: theories and lessons from the USA

While the goal of reducing environmental impact has become an urgent imperative for Chinese leadership, the central and potentially competing objective for policy makers and planners remains economic growth and job creation. This paper systematically examines the perceived trade-offs between pollution control regulation and employment at the microeconomic and macroeconomic scale. We synthesize the theoretical literature on the employment impact of pollution control regulation at the firm, industry, and economy levels and summarize the theoretically sufficient conditions for employment-enhancing regulation. The paper examines the US experience with the impact of pollution control on job growth in the 1980s and 1990s and draws out the mechanisms through which job growth and pollution control can be congruent, examining their adaptability to the Chinese context. Specifically, this paper highlights the importance of targeting regulations toward sectors where labor costs represent a small portion of overall costs or sectors with low labor intensity. We demonstrate that in the Chinese context, a transition to an economy with a higher proportion of tertiary output is likely to facilitate a joint strategy of stringent pollution control combined with job growth.