Mandatory Environmental Regulation, Enterprise Labor Demand and Green Innovation Transformation: A Quasi-Experiment from China’s New Environmental Protection Law

Abstract

To improve the human living environment and maintain the balance of the ecosystem, the Chinese government implemented a new environmental protection law (NPL) in 2015. Based on data for Chinese A-share listed companies and prefecture-level cities from 2005 to 2020, a difference-in-difference model is used to empirically explore the impact of the mandatory environmental regulation on labor demand (LD) and green innovation transformation (GIT) for heavy pollution enterprise (HPE). The results indicate that NPL leads HPE to reduce LD and achieve GIT, compared to non-HPE. This finding still holds by a series of robustness tests. Lower financial constraints and higher fintech can alleviate the negative impact of the NPL on the LD of HPE and enhance the positive impact of the NPL on the GIT of HPE. From regional heterogeneity, NPL causes HPE to increase their labor in the eastern region but reduce labor in the middle and western regions. NPL positively affects the GIT and shows a “U” shape from the east-middle-west regions. From enterprise heterogeneity, NPL mainly has a significant dampening effect on the LD for old and high staff cost enterprises and has a greater positive impact on the GIT for these both types of enterprises. Meanwhile, there is a gradually increasing lag in the impact of NPL on LD and GIT. Our findings provide new perspectives for the government to implement the policy of NPL and for enterprises to transform development.