Abstract

This paper tests how a major cap-and-trade program, known as the NOx budget trading program (NBP), affected labor markets in the manufacturing sector. The cap-and-trade program dramatically decreased levels of NOx emissions and added substantial costs to regulated firms. Using a triple-differences approach, I examine how labor markets adjusted in manufacturing industries that were exposed to the program. I find that overall employment in the manufacturing sector dropped by 1.3%, with energy-intensive industries losing up to 4.8%. Employment declines are shown to have occurred primarily through decreased hiring rates rather than increased separation rates, thus mitigating the impact on incumbent workers. Young workers experienced the largest employment declines, and earnings of newly hired workers fell after the regulation began.

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