Cross-Border Environmental Regulation and Firm Labor Demand

67 Pages Posted: 17 Feb 2022

See all articles by Pavel Chakraborty

Pavel Chakraborty

Lancaster University

Anindya S. Chakrabati

Indian Institute of Management (IIM), Ahmedabad

Chirantan Chatterjee

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

Abstract

In 1994, due to environmental concerns, Germany banned a chemical called ‘Azodyes’, 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 crossborder 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 3–18% 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) through environmental regulation 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

Suggested Citation

Chakraborty, Pavel and Chakrabati, Anindya S. and Chatterjee, Chirantan, Cross-Border Environmental Regulation and Firm Labor Demand. Available at SSRN: https://ssrn.com/abstract=4034439 or http://dx.doi.org/10.2139/ssrn.4034439

Pavel Chakraborty

Lancaster University ( email )

Lancaster LA1 4YX
United Kingdom

Anindya S. Chakrabati

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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