Do EPA Regulations Affect Labor Demand? Evidence From The Pulp And Paper Industry

The popular belief is that environmental regulation must reduce employment, since such regulations are expected to increase production costs, which would raise prices and thus reduce demand for output, at least in a competitive market. Although this effect might seem obvious, a careful microeconomic analysis shows that it is not guaranteed. Even if environmental regulation reduces output in the regulated industry, abating pollution could require additional labor (e.g. to monitor the abatement capital and meet EPA reporting requirements). It is also possible for pollution abatement technologies to be labor enhancing.

In this paper the writers analyze how a particular EPA regulation, the so-called “Cluster Rule” (CR) imposed on the pulp and paper industry in 2001, affected employment in that sector. Using establishment level data from the Census of Manufacturers and Annual Survey of Manufacturers at the U.S. Census Bureau from 1992-2007 they find evidence of small employment declines (on the order of 3%-7%), which are sometimes statistically significant, at a subset of the plants covered by the CR.


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