The Relationship between Carbon Emissions and Wages: Evidence from Japanese manufacturing installations

The global transition toward a low-carbon economy is substantially transforming economic structures. In the European Union, where low-carbon policies are being actively promoted, policy measures have increasingly been introduced to address economic disparities arising from decarbonization. Nevertheless, there is still insufficient empirical evidence on the relationship between decarbonization and economic inequality. This study examines how progress in decarbonization at Japanese manufacturing installations, measured in changes in CO₂ emissions, is associated with employee wages. We first present a conceptual framework that organizes the mechanisms proposed in previous studies into six channels and states the conditions under which the correlation between emissions and wages becomes positive or negative. The estimated association is negative when installation productivity is not held constant, and positive once total factor productivity (TFP) is controlled for. The positive association is stronger at installations with a higher value-added share, and it is larger when estimated using persistent rather than year-to-year variation in emissions. These findings are consistent with mechanisms such as rent sharing and with differences in working conditions and production processes across installations, but are difficult to reconcile with the explanation of a dominant green skill premium over the sample period. These findings highlight a potentially important distributional dimension of decarbonization in the manufacturing sector.