The Effects of the Clean Air Act on Local Industrial Wages In the Presence of Wage Spillovers

This paper investigates the effects of the Clean Air Act on local manufacturing wages. Taking into account wage spillovers explicitly into the model distinguishes this paper from existing studies in which spillover effects were ignored or were not a major focus. Using the 1982-2007 Census of Manufactures and the historical pollutant-specific nonattainment status for all counties, a wage model has been constructed with fixed effects partly based on the model specification in Greenstone (2002). The wage reduction in emitters induced by the regulations ranged 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 on average relative to emitters in non-regulated counties. The regulation effects are not uniform across industries: petroleum & coal, chemical & allied products and paper & allied products are influenced most among emitters. Estimation results of spatial fixed effects model suggest that wage spillover effects are not strong when county or individual fixed effects are taken into account.