More green, less labor gains? Green factory and labor income share in China

Green Manufacturing, a pivotal aspect of green transformation, carries high expectations for its potential role in wealth creation and equitable distribution. This paper investigates whether the growth dividend resulting from Green Manufacturing benefits workers. Leveraging the “Green Factory” list released in 2017 and subsequent years as a quasi-natural experiment, we apply a time-varying difference-in-differences methodology to analyze the income distribution effects of Green Manufacturing. Our findings reveal that Green Manufacturing significantly boosts labor productivity within companies but does not notably impact worker wages, leading to a decline in the labor income share. Furthermore, we show that alleviating financing constraints and fostering green innovation are two prominent operating mechanisms, while human capital upgrading shows negligible effects. Overall, the evidence suggests that the growth dividends stemming from Green Manufacturing do not evenly benefit all input factors. •Using Green Factory list as a quasi-natural experiment, we identify a causal effect of Green Manufacturing on labor share.•Green Manufacturing significantly leads to a reduction in the labor share.•Green Manufacturing enhances the labor productivity of companies but does not have a significant effect on worker wages.•Alleviating financial constraints and promoting green innovations are key operating mechanisms.