Does environmental regulation affect the labor income share of manufacturing enterprises? Evidence from China

On January 1, 2015, the amended Environmental Protection Law introduced by the People's Republic of China went into effect to safeguard environmental sustainability; however, some critics have indicated its detrimental effects. Based on a quasi-natural experiment of the new Environmental Protection Law, we examined the effects of environmental regulation on labor income share using a difference-in-differences model. Our research illustrates that stricter environmental regulation lowers manufacturing enterprises' labor income share through capital deepening. Stricter regulation has a more detrimental impact on large-scale organizations, companies with weak corporate social responsibility, and companies with less pressure on employment stability. Further analysis demonstrates that the new Environmental Protection Law encourages manufacturing companies to increase capital inputs and hire highly skilled laborers.