The effects of environmental regulation and technological advancement on labor Demand : evidence from the norwegian primary aluminum industry

Abstract

The motivation to implement environmental regulations is to increase environmental quality, as well as to promote higher quality of life and health benefits, for citizens. But how do environmental regulations affect labor demand in the regulated industries? The aim of this thesis is to analyze the effect of two environmental regulations imposed on the Norwegian primary aluminum industry on labor demand. Moreover, we investigate the effect of a technological change originating from the latter regulation on labor demand, being the shutdown of the more polluting and less efficient production technology, the Søderberg anodes. In particular, we exploit the introduction of an environmental agreement in 1997, and an increased stringency in the industry’s emission permits in 2000, as exogenous sources of variation in labor demand in the pertinent municipalities, by using a differences-in-differences strategy. Furthermore, we instrument the latter regulation on the shutdown of the Søderberg anodes. Using Norwegian municipality–level data, we find that the 97–agreement, and the shutdown of the Søderberg anodes, are associated with a short–term increase in the employment rate equivalent to respectively 135 and 406 jobs, in each of the municipalities in Norway that encompass a primary aluminum production plant.