Regulation Through Revelation: The Effect of Pollution Monitoring on Labour Demand

ABSTRACT This paper investigates how manufacturing firms respond to a real‐time pollution monitoring programme, with a focus on the implication for employment. Contrary to the conventional expectation that environmental regulations negatively impact business, the findings reveal that enhanced pollution monitoring has a significant and robust positive impact on the employment of monitored firms. On average, firms subject to the pollution monitoring programme experience a 5% rise in employment, equivalent to approximately 102 additional workers. Further analyses indicate that this positive employment effect is primarily driven by increased capital investment and the subsequent output expansion, with innovation contributing a statistically significant but economically smaller role. This study also examines sectoral heterogeneity, ownership structure and the interactions between the monitoring programme and other environmental policies implemented during the same period. The findings offer valuable insights into the benefits of technological advancements for improving law enforcement.