Frontiers in Business, Economics and Management 
ISSN: 2766-824X | Vol. 18, No. 1, 2025 

 

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The Impact of Environmental Regulation on 
Employment: A Review of Studies 

Huiyan Zhu 

School of Business, Wenzhou University, Wenzhou 325035, China 

 

Abstract: In the context of green and low-carbon transition, there is an increasing number of studies on the impact of 
environmental regulation on employment, and this paper mainly analyzes the connotation of environmental regulation, tools, 

employment impact perspectives, and research shortcomings and suggestions. First, this paper discusses the definition of 

environmental regulation, analyzes the common measurement methods of environmental regulation, secondly, summarizes the 

main tools of environmental regulation, and thirdly, summarizes the various views of the academic community on the impact of 

environmental regulation on employment, including different theoretical explanations such as cost effect, innovation effect and 

uncertainty effect. Finally, this paper reviews the shortcomings of current research, and suggests that policy design should take 

into account the dual goals of environmental protection and employment promotion to achieve sustainable development. 

Keywords: Employment, environmental regulation, high-quality economic development, "Double carbon" goal. 

 

1. Introduction 

As the largest carbon emitter and the world's second largest 

economy, China has been consuming a large amount of fossil 

fuels due to its long-term dependence on the industrial 

economy to drive economic growth, resulting in rising carbon 

emissions. Huge carbon emissions have put China under 

increasing pressure to reduce emissions. The report of the 

20th National Congress of the Communist Party of China also 

emphasized that China should focus on controlling fossil 

energy consumption, promote clean, low-carbon and efficient 

use of energy, promote the adjustment of energy structure 

from the supply side and the consumption side at the same 

time, and actively and steadily promote carbon peak and 

carbon neutrality. In order to achieve the "dual carbon" goal, 

China has introduced a series of carbon reduction measures, 

and environmental supervision has been continuously 

increased. Environmental regulation is a broad and profound 

social change, which will inevitably have an impact on all 

walks of life. In the process of environmental regulation, with 

the transformation of production methods and development 

concepts in all walks of life, some industries have been 

eliminated due to their inability to adapt to environmental 

changes, so employees in this industry have to face job 

adjustment and change. Employment, as a livelihood issue, is 

an important macroeconomic goal. The rise in unemployment 

will not only lead to a lag in economic construction and a 

decline in total social output, but will also widen the income 

gap and affect social and political stability (Chen Yuanyuan, 

2011). At this stage, China is in a critical period of economic 

transformation and high-quality development, ecological 

environmental protection is related to the improvement of 

economic quality, and full employment is related to the 

stability of people's livelihood. It can be found that the 

environment is an ecological issue and a key way to achieve 

sustainable development in China, and employment is a 

livelihood issue and a livelihood issue. So, can the 

government introduce appropriate policy measures to achieve 

the dual benefits of the environment and employment? It is a 

hot spot of concern in today's society. 

2. The Connotation and Classification 
of Environmental Regulation 

2.1. The Connotation of Environmental 
Regulation 

The evolution of environmental regulation reflects a shift 

from single-led government to the participation of multiple 

actors. In the early days, environmental regulation mainly 

relied on the government's “visible hand”, through 

administrative orders, laws and regulations and market-

oriented means, to impose strict control and restraints on 

heavily polluting industries. At this stage, the government 

played the role of the main regulator, taking mandatory 

measures to promote enterprises to reduce pollution 

emissions. However, with the progress of society and the 

increasing awareness of environmental protection among 

residents, the public has gradually attached more importance 

to environmental protection, and the government has begun 

to advocate the development concept of “green water and 

green mountains are golden silver mountains”, emphasizing 

the harmonious symbiosis between economic development 

and environmental protection. In this process, non-

government forces have gradually played an important role, 

including social organizations, environmental volunteers, 

residents and industry associations and other diversified 

subjects, so that environmental protection is no longer solely 

dependent on government supervision, but the formation of 

environmental protection synergy promoted by the 

government, enterprises and the public. Through the 

collaboration of such diversified subjects, the problem of 

negative environmental externalities has been solved more 

comprehensively and effectively. Whether it is the 

government or non-governmental organizations, the core 

purpose of environmental regulation is to promote green 

transformation through the constraints and guidance of 

polluting enterprises, realizing the double dividend of 

economic growth and environmental protection, thus laying 

the foundation for sustainable development and ultimately 

reducing or eliminating the negative impacts caused by 

pollution (Gao, 2023). 



 

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2.2. Classification of Environmental 
Regulations 

Environmental regulation can be divided into formal 

regulation and informal regulation according to the different 

implementing entities (Zhou Haihua and Wang Shuanglong, 

2016). Formal regulation is usually led by the government, 

including laws, regulations, standards and administrative 

orders, which are mandatory and legally enforceable. 

Informal regulation mainly relies on social groups, public 

opinion, and corporate voluntary norms of conduct, such as 

social responsibility, corporate ethics, and environmental 

information disclosure. As environmental issues become 

more complex, informal regulation has also played an 

important role in some cases, especially among an 

increasingly environmentally conscious public. In addition, 

environmental regulations can be classified according to their 

specific enforcement tools. Command-and-control 

environmental regulation restricts pollution sources through 

the government setting mandatory emission standards or 

codes of conduct, which has direct coercive force, but may 

lead to higher costs for enterprises. Market-based incentives 

encourage enterprises and individuals to participate in 

environmental protection by rewarding environmentally 

friendly behaviors, such as carbon trading, tax incentives, 

subsidies, etc. (Zhang Xiaomin et al., 2021) public 

participation regulation emphasizes the role of society and the 

public, promotes environmental information disclosure, 

public participation in decision-making and supervision, and 

promotes the socialization and transparency of environmental 

protection. 

3. Measurement Methods for 
Environmental Regulation 

In the literature, environmental regulation measurement 

methods are usually categorized into three main groups. The 

first category is the single-indicator method, which measures 

the intensity or effectiveness of environmental regulation by 

selecting a single indicator. For example, the proportion of 

government revenue from sewage charges to industrial value 

added, emissions per unit of GDP, environmental taxes and 

fees, and the number of environmental laws and regulations 

can all be used as measures (Yu Lianchao et al., 2019). The 

second category is the environmental regulation indicator 

system method, which evaluates the comprehensive 

efficiency of environmental regulation by constructing a 

comprehensive environmental regulation indicator system 

and combining multiple indicators. Common analytical 

methods include Data Envelopment Analysis (DEA), which 

can effectively assess the relationship between human, 

material and financial inputs and pollution control effects. 

The third category is the categorical examination method, in 

which environmental regulation is categorized into different 

types, such as command-and-control, market-incentive and 

voluntary-participation, and the strength and effectiveness of 

each type of environmental regulation is measured by 

comprehensive indicators constructed from these different 

perspectives (Qiao Bin, 2021). 

3.1. The impact of Environmental Regulation 
on Employment 

The current academic research on the impact of 

environmental regulation intensity on employment mainly 

presents three different views. The first view is that 

environmental regulation inhibits employment through the 

“cost effect” and the “pollution refuge effect”. Specifically, 

stringent environmental regulations will increase the 

production costs of enterprises, especially the need to invest 

more money in pollution control or the construction of 

environmental protection facilities, which may lead to the 

downsizing of employees or layoffs, thus negatively affecting 

the job market. At the same time, some of the more polluting 

firms may choose to relocate to regions or countries with 

lower environmental requirements, further aggravating 

employment pressure. The second view is consistent with 

Porter's hypothesis, which argues that environmental 

regulations can promote technological innovation of firms. In 

this case, in order to cope with environmental regulations, 

firms may increase their R&D investment and promote the 

innovation of green technologies and production methods. 

Such innovation not only enhances the competitiveness of 

enterprises, but also creates new employment opportunities, 

especially in industries related to environmental protection 

and sustainable development, thus leading to overall 

employment growth. The third view is that the impact of 

environmental regulation on employment is uncertain and 

manifests itself in a “U-shaped” curve. Specifically, in the 

short term, the cost pressures faced by enterprises may inhibit 

employment, but over time, through technological innovation 

and transformation and upgrading, enterprises will be able to 

adapt to stricter environmental regulations, which will lead to 

the creation of new jobs, thus realizing the double dividend of 

employment and the environment. This view emphasizes the 

time lag and long-term nature of the impact of environmental 

regulations on employment. 

3.2. The Cost Effect 

The cost effect is that environmental regulations increase 

the production costs of firms, which in turn reduces 

employment opportunities. Research has shown that the 

implementation of strict environmental regulations can lead 

to more resources for companies to invest in compliance, 

which often means higher costs for companies, especially in 

highly polluting, resource-intensive industries. In order to 

cope with the additional environmental costs, companies may 

choose to lay off staff or scale back production, resulting in a 

loss of jobs. Through empirical research, Wu Qihe Tao Liang 

(2020) found that environmental regulations do inhibit 

employment growth in some cases, especially in the short 

term. 

3.3. The Innovation Effect (Porter's 
Hypothesis) 

Kuai et al. (2021) and Wang Feng and Ge Xing (2022) 

argue that in contrast to the cost effect, the innovation effect 

emphasizes that environmental regulation can stimulate 

technological innovation by firms, thereby driving 

employment growth. Porter's hypothesis suggests that while 

environmental regulation may lead to higher costs in the short 

term, it can improve the competitiveness of firms and create 

new jobs by incentivizing them to innovate in environmental 

technologies. For example, innovations in clean energy 

technology, energy-saving equipment, and environmental 

monitoring and treatment technologies have not only 

promoted industrial upgrading, but also provided more 

employment opportunities for high-skilled workers. 

Therefore, some studies believe that environmental regulation 

is a positive factor to promote technological progress and 



 

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industrial structure transformation, and can create more jobs 

in the long run. 

3.4. The Uncertainty Effect (U-Curve) 

Li Mengjie (2016) proposed that the uncertainty effect and 

the impact of environmental regulation on employment may 

show a U-shaped curve. Qin et al. (2018) argue that in the 

short term, due to the need for firms to adapt to new regulatory 

requirements, there may be rising costs and reduced 

production, which will lead to a decrease in employment. 

However, as firms adapt and improve productivity through 

technological innovation, environmental regulations may 

instead promote job growth. For example, some industries 

may see an increased demand for highly skilled workers due 

to the implementation of environmental regulations, 

especially in the environmental industry and green 

technology sectors. This effect suggests that the impact of 

environmental regulation is dynamic and needs to take into 

account the difference between the short and long term. 

4. Conclusions and Recommendations 

Based on the above analysis, the impact of environmental 

regulation on employment is not singular, but shows different 

effect mechanisms, and is affected by region, industry, 

enterprise and other factors. Overall, in the short term, strict 

environmental regulations may discourage employment 

through cost effects, especially in traditional and highly 

polluting industries. However, with the advancement of 

technological innovation and industrial structure 

transformation, environmental regulation is likely to promote 

employment in the long run, especially in emerging industries 

such as environmental technology and clean energy. The 

innovation effect and U-shaped curve effect of Porter's 

hypothesis provide a theoretical basis for this phenomenon. 

Future research should further explore the impact of 

environmental regulation on employment, especially the 

heterogeneous impact across regions, industries, and firms. 

Policy design should consider how to give full play to the 

positive effects of environmental regulation by optimizing the 

supporting measures of environmental regulation and 

employment policies, avoid excessive restrictions on 

employment opportunities in traditional industries, and 

promote the growth of green employment. At the same time, 

the government and enterprises should work together to 

strengthen the support of technological innovation and 

environmental protection industries to achieve the dual goals 

of environmental protection and employment promotion. 

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