Cross-Border Environmental Regulation and Firm Labor Demand

58 Pages Posted: 19 Mar 2021 Last revised: 30 Sep 2021

See all articles by Pavel Chakraborty

Pavel Chakraborty

Lancaster University

Anindya S. Chakrabarti

Indian Institute of Management (IIM), Ahmedabad

Chirantan Chatterjee

SPRU-Sussex, U-Sussex Business School; Hoover Institution, Stanford University; Indian Institute of Management, Ahmedabad

Date Written: September 30, 2021

Abstract

In 1994, due to environmental concerns, Germany banned a chemical called 'Azo-dyes', a primary input for the leather and textiles firms in India (a key exporter). Exploiting this as a quasi-natural experiment, we examine the effects of this cross-border regulatory change on labor compensation, particularly managerial, for both Indian upstream (dye-producing) and downstream (leather and textile) firms. We find that the regulation increased compensation of managers by 3.7--18% in dye-producing firms compared to other chemical firms. This is due to the combination of changes such as investing in R&D and product churning, due to the ban, which led to this change in within firm labor composition. This increase in overall compensation is driven only by fixed component (wages), consistent with the effects of a long-run shock. We find no such effects for downstream firms. We believe, our study is one of the first to show that just like tariff, non-tariff barriers (NTBs) can also significantly affect within firm labor composition.

Keywords: 'Azo-dyes', Non-tariff barriers, Cross-border environmental regulation, Managerial Compensation, Dye-producing Firms, Upstream and Downstream Sectors

JEL Classification: F1, K32, 03, L25

Suggested Citation

Chakraborty, Pavel and Chakrabarti, Anindya S. and Chatterjee, Chirantan, Cross-Border Environmental Regulation and Firm Labor Demand (September 30, 2021). Available at SSRN: https://ssrn.com/abstract=3783621 or http://dx.doi.org/10.2139/ssrn.3783621

Pavel Chakraborty

Lancaster University ( email )

Department of Economics
Management School
Lancaster, LA1 4YX
United Kingdom

Anindya S. Chakrabarti

Indian Institute of Management (IIM), Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

Chirantan Chatterjee (Contact Author)

SPRU-Sussex, U-Sussex Business School ( email )

Brighton, BN1 9SL
United Kingdom

HOME PAGE: http://https://profiles.sussex.ac.uk/p535606-chirantan-chatterjee

Hoover Institution, Stanford University ( email )

Stanford, CA 94305
United States

HOME PAGE: http://https://www.hoover.org/profiles/chirantan-chatterjee

Indian Institute of Management, Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

HOME PAGE: http://https://www.iima.ac.in/web/faculty/faculty-profiles/chirantan-chatterjee

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