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Abstract

Since the beginning of the Clean Air Act, firms operating in regulated counties have faced with higher costs, which consequently had an impact on local labor markets. This paper investigates the effects of the air quality regulation on local manufacturing wages. Taking into account wage spillover explicitly into the model distinguishes this paper from existing studies in which spillover was ignored or was not a major focus. Using the 1982-2007 Census of Manufactures and the historical pollutant-specific nonattainment status for all counties, I construct the wage model with fixed effects partly based on the model specification in Greenstone (2002). I find the wage reduction in emitters induced by the regulations ranging from 2% to 10% depending on the pollutant, which in the 2005 dollar amount are equivalent to loss of roughly $800~$4,000 a year. I also find that the regulation effects are not uniform across industries: petroleum & coal, chemical & allied products and paper & allied products are influenced most among emitters. I find an evidence of the existence of spillover, but it is not so evident in the preferred fixed effects model.

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