The Impact Of Pollution On China’s Labor Productivity-Theory And Empirical Study

Increasingly serious environmental problems has compressed human to look againat the relationship between economic development and pollution. Although theenvironmental Kuznets curve (EKC) hypothesis shows that pollution would be reducedwith economic development as the GDP per capita reach a level, the turning point forEKC cannot roll in on the wheels of inevitability, but comes through the pollutionabatement with the increasing stage of scale returns. Therefore, effective pollutionabatement is the key factor to promote the coming of EKC’s turning point. The basis ofpollution abatement policy lies on the difference of private cost and social cost ofpollution, and existing literature has discussed the impact of pollution on labor supply,but neglected the impact of pollution on labor productivity. However, as Graffzivin et. al(2012) said, environmental pollution can affect the productivity without the impact ofpollution on labor supply. So, the paper builds the concept framework of the impact ofpollution on labor productivity with the basis of endogenous growth theory andhypothesis of Environmental Kuznets Curve, and then analyzes the concret impact ofpollution on labor productivity on China’s current conditions.Firstly, unlike the traditional economic growth model which treat pollution as theby product of economic activity, this paper used the hypothesis of EKC to incorporatepollution into the framework of endogeneous growth model, and then investigate theimpact of pollution on labor productivity from two channels which are the effect ofpollution on product cost and the damage of pollution on health human capital. As to thefirth channel, the impaction of pollution on labor productivity comprise of the incomeeffect and the substitution effect; and both are suggest that pollution has a positvit effecton labor productivity in less developed areas; but the income effect is negative and thesubstitution effect is positive in developed areas. As to the second channel, the impact ofpollution on labor productivity is indirect, and comprised of health cost effect and healthallocative effect; the health cost effect is positive in both less developed and developedareas; however, the health allocative effect suggest that pollution can decrease laborproductivity in less developed areas, but would do damage to labor productivity indeveloped areas. At last, the impact of pollution on labor productivity is various, and thedifferent environmental abatement intensity and environment pollution volume andeconomic development can make different results. Based on the analysis of theorial model, this paper builds the empirical model ofthe impact of pollution on labor productivity, and Chinese provincial dataset from1990to2011is used to be studied empirically. However, an important problem is apperedthat the trational index of labor productivity such as GDP per labor cannot diffenentiatethe contribution of labor and physical capital to output. Therefore, from the viewpointof marginal labor productivity, the paper builds the product concept framework withdistance function, and solves the labor productivity on the hypothesis of perfectcompetition which also takes the loss of the efficiency into account. At last, theempirical results suggest that pollution has a negative impaction on the current laborproductivity and the conclusion is robust. The short-term effect of pollution on laborproductivity is not significant, but the long-term effect is negative and significant. Withthe method of panel threshold model, the paper also discuss the interval effect of theimpaction of pollution on labor productivity, and it is found that the negative effectwould be increasing with the aggravation of pollution, and would be decreasing as theeconomic grows, and shows an inverted “U” change with the enhancement ofenvironmental regulation.At last, on the theoretic and empirical support of pollution on labor productivity,the paper analyzes the impaction on the convergence of labor productivity frompollution. Using by the viewpoint of Barro et al.(1992) and Capozza et al.(2002), aneconometric model is developed to describe t he impaction on the convergence of laborproductivity from pollution. With the method of panel threshold model, the conclusionssuggests that there exists a significant β absolute convergence among Chineseprovincial labor productivity, but theβabsolute convergence shows a finite convergencewith the leading east China before2000; with the aggravation of pollution, theconvergence speed shows a first increased and then decreased trend; and therelationship between convergence speed and environmental regulation intensity presentsan inverted “U” form.