Enhancing or suppressing: The effect of labor costs on energy intensity in emerging economies

The existing literatures have not systematically studied and reached a consensus on the relationship between labor costs and energy intensity. This study introduces the mediation model to solve the theoretical disputes, and proposes three mediating effects of labor costs on energy intensity, i.e., substitution effect, industrial structure effect, and total factor productivity effect. The bootstrap confidence interval method and causal steps approach are used to test the mediating effects and decompose total effect. As indicated by the empirical study using panel data of 22 emerging economies, the total effect of rising labor costs on energy intensity is negative. The contributions of substitution effect, industrial structure effect and total factor productivity effect to the total effect are -21.8%, 8.9% and 76.4% respectively. Therefore, the total factor productivity growth turns out to be the main way in which labor costs affect energy intensity in emerging economies. These findings provide new empirical support for the Neo-classical growth theory and Environment Kuznets Curve hypothesis from the perspective of labor costs. (C) 2020 Elsevier Ltd. All rights reserved.

Automated summary

This study introduces a mediation model to analyze the relationship between labor costs and energy intensity, finding that total factor productivity growth is the main way in which labor costs affect energy intensity in emerging economies.