Department of Economics Issn 1441-5429 Discussion paper 21/10 The Backward Incidence of Pollution Regulation on Workers’ Wages: Empirical Evidence From Shanghai Vinod Mishra 1 and Russell Smyth 2 Abstract: In this study we examine the extent to which firms pass back the cost of pollution regulation to workers in the form of lower wages using a unique matched employer-employee dataset for Shanghai. The benefits and costs of pollution regulation in China are important topics to study as China comes under increasing pressure to move from a single-minded focus on energy-driven economic growth to a more balanced approach to economic growth. The benefits of such a shift, particularly in terms of health, are relatively well-studied, but the costs are less so. The hip-pocket effect of pollution regulation on workers’ wages is particularly important given that it is likely to influence public support for a more balanced approach. Our main finding is that the reduction in average wages attributable to firms taking measures to control for pollution is between 13.8% and 18.8%, all things being equal. Keywords: Wages, Pollution abatement, China 1 Department of Economics, Monash University, Australia. Vinod.mishra@buseco.monash.edu.au 2 Department of Economics, Wellington Road, Clayton, Vic, 3800. Russell.Smyth@buseco.monash.edu.au © 2010 Vinod Mishra and Russell Smyth All rights reserved. No part of this paper may be reproduced in any form, or stored in a retrieval system, without the prior written permission of the author