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

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Abstract

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.

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Notes

  1. In his address to the Second Session of the 12th National People’s Congress on March 5, 2014, Premier Li Keqiang stated, “environmental pollution has become a major problem, which is nature's red-light warning against the model of inefficient and blind development”.

  2. It is the government’s policy to restrict coal supply to state-owned coal mines, which are easier to manage for both supply and environmental reasons. Some of the larger state-owned coal mines are consolidated.

  3. It can be argued that the regulatory enforced closure of 58,000 small coal mines in China discussed later is a regulation that led to a subsequent reduction in marginal costs of coal production.

  4. Morgenstern et al. (2002) construct a similar decomposition of the overall effect on firm labor demand into the following three effects: (1) the demand effect or changes in the quantity of output demanded; (2) the cost effect or increases in all factor inputs from greater pollution abatement activity; and (3) the factor shift effect or changes in factor intensities. The first term in the Berman and Bui (2001) model is equivalent to the sum of the demand effect and the factor shift effect from Morgenstern’s model.

  5. For example, Laitner et al. (1998) calculate that $1 million of final demand in the coal and other mining, oil and gas extraction, refining, gas and electric utilities sectors supports between 13 and 26 jobs, whereas the same final demand in education, retail trade, and other services supports 44–62 jobs. This relationship is likely to hold because the products of the energy generation sector constitute both final demand and intermediate demand for many sectors, whereas many services such as retail trade are likely to constitute only final demand. Hence, $1 of retail trade final demand supports workers in many upstream sectors including those in energy generation, whereas $1 of energy generation final demand supports few other upstream sectors.

  6. A notable exception would be (Berman and Bui 2001), which reports significantly higher productivity for Los Angeles refineries despite more stringent air pollution regulation in the state.

  7. Using the central estimate for net benefits of $21.7 trillion and 590,000 estimated jobs lost.

  8. A subsequent book-length treatment by Goodstein (1999) finds no economy-wide trade-off between regulation and job loss.

  9. Bezdek et al. (2008) also provide a survey of earlier literature.

  10. Another European study with similar conclusions is (McEvoy et al. 2000).

  11. The region has a history of being out of compliance with both levels of regulation; when the South Coast Air Quality Management District (AQMD) was formed in 1997, there was doubt even among regulatory staff that the region would ever be smog free (1997) Since the inception of AQMD, industry in the area has been subject to some of the most stringent regulations in the USA.

  12. Local air quality regulations dramatically more stringent than federal standards were implemented in the South Coast Basin of California the late 1970s. The South Coast Basin of California, comprising Los Angeles, Orange, Riverside, and San Bernardino County has a history of smog and poor air quality.

  13. This finding is in stark contrast with the public opinion at the time. In the late 1980s and 1990s, there was a heated debate in the US media about the effects of regulation on jobs, and in 1993 a Wall Street Journal poll finds that one-third of respondents personally feared that their jobs were threatened by environmental regulations (Goodstein 1999). The wider debate coincided with an economy-wide recession and Berman and Bui (1997) note that the time period they analyzed corresponded with large cuts in defense spending that affected industry in the South Coast Basin. The cutbacks lead to large decreases in employment in the aerospace industry, which also happened to be subject to two regulations in that time frame. The public may not be able to discern the effect of regulations from other economic impacts on the job market.

  14. California Energy Demand 2014–2024 Baseline Final Forecast—Mid Demand Case Residential.

  15. The EPL stipulates that the design, construction, and operation of newly installed industrial processes must be synchronized with the design, construction, and operation of appropriate waste treatment facilities.

  16. Comparison made using GDP per capita in current dollars, data extracted from The World Bank (2015a, b). World Development Indicators.

  17. Comparison made using total CO2 emissions (metric tons), data extracted from The World Bank (2015a, b). World Development Indicators.

  18. Job loss was estimated using ILO data on employment in the Mining and Quarrying sector (ILO 2014) as data for coal mining employment specifically is not available for this time period. The share of coal employment of total sector employment (70 %) was approximated using data on overall sector employment and coal mining employment from recent China Statistical Yearbooks (National Bureau of Statistics of China, 2009, 2010, 2011, 2012, 2013a).

  19. 2012 Employment in Coal Mining Industry National Bureau of Statistics of China (2013a), as share of Total Persons Employed National Bureau of Statistics of China (2013b).

  20. The efficiency programs include the Ten Key Projects, which are focused on efficiency gains from coal-fired power plants to government agency energy conservation projects, by using economics incentives; Building Energy Efficiency Programs, which implemented targets for building energy efficiency standards for new buildings, retrofitting, energy efficiency management system in large commercial buildings, and utilization of renewable energy sources; the Top 1000 Energy-Consuming Enterprises Program, which mandated a series of energy saving targets for 1000 highest energy-consuming enterprises in nine industrial sectors; small plant closures, which aimed to close the most polluting and least energy-efficient facilities; and the appliance energy efficiency standards, which tries to improve household energy efficiency, and raise consumer awareness in energy saving.

  21. In contrast, the national saving rate (as a percentage of GDP) for the USA is only 15.7 % (The World Bank 2014b), making a transfer of resources from energy saving to service consumption a much likely scenario.

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Acknowledgments

We are very grateful to the team at the Research Program on Sustainability Policy and Management at the Earth Institute at Columbia University for supporting the research underlying this paper, to Wen Qiu for excellent research assistance, and to Zi Lian for formatting and submission of the manuscript.

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Authors and Affiliations

  1. Earth Institute, Columbia University, 2910 Broadway, New York, NY, 10025, USA

    Dong Guo

  2. Earth Institute, Columbia University, 2929 Broadway, 5th Fl., New York, NY, 10025, USA

    Satyajit Bose

  3. Earth Institute, Columbia University, 475 Riverside Drive, Mail Code: 3277, New York, NY, 10115, USA

    Kristina Alnes

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Guo, D., Bose, S. & Alnes, K. Employment implications of stricter pollution regulation in China: theories and lessons from the USA. Environ Dev Sustain 19, 549–569 (2017). https://doi.org/10.1007/s10668-015-9745-8

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