Does the Clean Air Action Really Affect Labor Demand in China?

How to balance resources, environment, and economic growth to achieve sustainable development is a challenge for developing countries. In 2013, China implemented a high-stringency environmental regulation, the Clean Air Action, which has effectively controlled air pollution. To explore the economic cost of environmental regulation, this paper investigates the policy effect on employment in the industrial sector. Based on the city-level data and firm-level data, this study applied a quasi-natural experiment for policy evaluation and used the mediating effect model for mechanism analysis. The difference-in-difference estimation results show that environmental regulation has a significant impact on employment. The mechanism analysis verifies that output adjustment, capital input, and green innovation are the main channels by which environmental regulation distresses employment. The findings of this paper could be extended to other countries at a similar stage of development.