Climate Change Exposure and Corporate Employment: Evidence From China

ABSTRACT Climate change can significantly impact firms' employment decisions. Prior literature mainly focuses on this issue from the perspective of regional or industry‐level climate change exposure. This paper adopts a text‐based method to measure firm‐level exposure to climate change and investigates its impact on employment. Using a sample of 1958 publicly traded Chinese firms between 2006 and 2020, we find consistent evidence of a negative correlation between climate change exposure and corporate employment levels. This adverse impact is more pronounced among non‐state‐owned enterprises, firms with a lower corporate social responsibility performance, entities entrenched in highly competitive industries, and larger corporations. Our mechanism analyses show that climate change exposure exacerbates financing constraints for firms, compelling them toward an increased commitment to green innovation initiatives and thereby reducing their labor demand. Overall, the results demonstrate the importance of climate change exposure to shaping corporate employment strategies, providing substantive insights for policymakers and business leaders navigating the complexities of environmental sustainability and labor dynamics.