Employment, labor productivity and environmental sustainability: Firm‐level evidence from transition economies

Abstract

This article investigates the impact of investment in environmentally sustainable practices on employment and labor productivity growth in transition economies. It explores the influence of labor skill composition and geographical variations on sustainability dynamics. Utilizing data from the World Bank's Enterprise Survey 2019 across 24 transition economies, an environmental sustainability index is constructed using Principal Components Analysis. To address endogeneity concerns, a combination of fixed effects and instrumental variables is employed. The findings highlight the significance of environmental sustainability for both employment and labor productivity growth. However, the observed relationships diminish in significance when comprehensively addressing endogeneity, suggesting a more nuanced and time‐dependent connection between environmentally sustainable practices and job growth. Notably, high‐skill firms experience a deceleration in job creation following sustainability investments, while low‐skill firms benefit from improved labor productivity. Geographically, Central Europe exhibits more pronounced impacts on labor productivity, potentially attributed to higher levels of development and sustainability awareness compared to Southeast Europe and the Commonwealth of Independent States.