Balancing Wages and Sustainability: The Hidden Impact of Minimum Wage Policies on Clean Gas Consumption in Chinese Industrial Firms

Clean gas is a relatively low-carbon fuel used in industrial production, yet little is known about how labor-market regulation is related to firms’ use of this energy input. Using a matched panel of 215,948 firm-year observations from Chinese industrial firms in 159 cities from 2006 to 2013, we examine the relationship between local minimum wage standards and firm-level clean gas consumption. The preferred fixed-effects estimate shows a significant negative association between the real monthly minimum wage and firm-level clean gas consumption. The negative association remains after controlling for additional firm- and city-level characteristics and industry–year and region–year fixed effects. The negative association also persists under the inverse hyperbolic sine transformation using the full baseline sample, as well as in a PPML specification estimated on a substantially smaller sample. Additional robustness checks include alternative clustering of standard errors, an instrumental-variable specification based on within-province minimum-wage variation, and one-period-ahead consumption. When standard errors are clustered at the city level, the coefficient remains negative and statistically significant at the 10% level. Product-of-coefficients mediation estimates are consistent with two partial channels: salary expenditure accounts for about 9.3% of the estimated relationship, while the operating-margin channel accounts for about 1.8%, with the latter only marginally significant. Most of the relationship remains unexplained and may reflect changes in production scale, operating intensity, fuel choice, or other operational responses. The hourly minimum wage is not significantly associated with clean gas consumption, consistent with the monthly standard being more relevant to the labor costs of regular full-time workers. The negative relationship is more pronounced among larger, state-owned, and capital-intensive firms. It is less pronounced during female mayoral tenure, although this interaction is treated as exploratory because mayoral appointments are nonrandom and the underlying policy channels are not observed. Overall, the findings suggest that labor-cost regulation is related to firms’ use of a specific cleaner energy input, while the available data do not establish whether lower clean gas consumption reflects reduced production, improved energy efficiency, substitution toward other fuels, or a combination of these responses.