This paper analyzes the energy price-employment nexus and contributes to the literature by showing that it is important to decompose the regulatory effect into demand, cost, and factor-shift effects. This is done by means of a cross-country multi-sectoral dataset. The results show that both rising energy prices and shadow prices of energy have no significant effect on net employment when the manufacturing sectors only are analyzed. While finding significant variations across countries, the average employment effects become significantly positive once jobs in the economy as a whole are considered. This change is driven mainly by larger positive cost effects, which more than offset the negative demand effects and reductions in the positive factor-shift effects. Moreover, the paper reveals that the often implemented approach of using a simple regulation regressor, instead of decomposing the employment effect, can result in biased estimates.

Given the still ambiguous empirical evidence, this paper analyzes the eironmental regulation-productivity nexus using an extended Neo-Schumpeterian productivity model. Thereby, the paper adds to the literature in three ways: First, shadow prices of energy along with industrial energy prices are employed as relative measures of eironmental policy stringency. To ensure the robustness of the results, the model is also estimated for five alternative regulatory measures that have been applied in prior research. Second, the study addresses the potential endogeneity of the eironmental regulation, innovation, and trade openness measures as a source of the inconclusive results. Third, as one of few analyses on the Porter Hypothesis, the paper utilizes a cross-country multi-sectoral dataset including also newly industrialized countries and former transition economies. The estimates show that the positive effects of increases in eironmental policy stringency on productivity, which are often found in the more recent studies, change to insignificant and partly negative effects once endogeneity is fully controlled for. Hence, no support for the strong Porter Hypothesis can be found. Instead, more stringent eironmental regulation fosters innovation and, therefore, has an indirect, yet not dominant, positive effect on productivity growth.