The effect of the environmental protection tax on corporate labor demand: Evidence from China

The environmental protection tax (EPT) is the first independent green tax in China's history aimed at environmental protection. However, limited research examined its potential impact on corporate labor demand. This study tries to investigate the effect of the EPT on corporate labor demand by taking the implementation of the EPT in 2018 as a quasi-natural experiment. This study applies the difference-in-differences (DID) model and the micro-data of industrial enterprises listed on the Shenzhen and Shanghai A-share markets from 2013 to 2022. The result suggests that the EPT could significantly increase corporate labor demand, which is verified by a range of robustness checks. The result of the mechanism analysis indicates that the EPT could increase corporate labor demand by the output effect and the substitution effect, which means the EPT increases corporate labor demand by motivating firms to expand production scale and increase environmental investment. The heterogeneity analysis indicates that the EPT's impact is significant only in large-scale enterprises and state-owned enterprises. Moreover, among laborers with different skill levels, the EPT only exerts a significant influence on corporate demand for high-skilled labor. This study bears important policy implications for keeping the balance between environmental protection and employment stability.