Cross-border environmental regulation and firm labor demand

Chakraborty, P. and Chakrabarti, A.S. and Chatterjee, C. (2023) Cross-border environmental regulation and firm labor demand. Journal of Environmental Economics and Management, 117. ISSN 0095-0696

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In 1994, due to environmental concerns, Germany banned a chemical called ‘Azo-dyes’, a primary input for the leather and textiles firms in India (a key exporter). Exploiting this as a quasi-natural experiment, we examine the effects of this cross-border regulatory change on labor compensation, particularly managerial, for both Indian upstream (dye-producing) and downstream (leather and textile) firms. We find that the regulation increased compensation of managers by 1.3%–18% in dye-producing firms compared to other chemical firms. This is due to the combination of changes such as investing in R&D, product churning, import of high-quality intermediates, due to the ban, which led to this change in within-firm labor composition. This increase in overall compensation is driven only by fixed component (wages), consistent with the effects of a long-run shock. We find no such effects for downstream firms. We believe, our study is one of the first to show that just like tariff, non-tariff barriers (NTBs) can also significantly affect within-firm labor composition.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Environmental Economics and Management
Additional Information:
This is the author’s version of a work that was accepted for publication in Journal of Environmental Economics and Management. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Environmental Economics and Management, 117, 2023 DOI: 10.1016/j.jeem.2022.102753
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19 Dec 2022 13:50
Last Modified:
09 Feb 2023 16:20