Labor market distortion and air pollution: An empirical analysis based on spatial effect modeling

Abstract

In China, along with the rapid development of economy, air pollution has become a hot issue of public concern, particularly in many cities. The distortion in the labor factor market can cause air pollution, but the underlying mechanism is not yet clear. To investigate this question, this article examines the effect of labor market distortion on air pollution focusing on SO₂ emissions based on data of China's 283 cities during 2003-2015. The main objectives are to examine the direct and spillover effects of labor market distortion on air pollution using panel fixed-effects models, including the spatial Durbin model and the mediated-effects model. Results show that labor market distortion directly aggravates air pollution in cities. Mechanism analysis suggests that labor market distortion incurs air pollution through mechanisms of suppressing technological progress, hindering the upgrading of industrial structure, and reducing the efficiency of energy use. Divided the cities by their locations into those in eastern, central, and western regions, we find that such unfavorable effects are more prominent in eastern and western regions of the country. These findings highlight the impetus of mitigating the distorted labor market to ameliorate air quality and promote sustainable development.

Keywords: Air pollution; China; Labor market distortion; Regional heterogeneity; Spatial Durbin model.