N°26-58: Nature Dependence and Labor Investment Efficiency

Does dependence on nature distort how firms hire? Using 86,584 firm-year observations from 68 countries over 2010-2024, we show that it does. More naturedependent firms exhibit lower labor-investment efficiency, driven mainly by underhiring. This inefficiency operates through operational and financial frictions: ESG incidents, market undervaluation, and financing constraints. The effect intensifies where social unrest is frequent, populations are aging, production is skill-intensive, and product-market competition is stronger. It weakens under stricter environmental policy, stronger employment protection, and effective government. Nature dependence is therefore not a purely sustainability concern; it is a binding constraint on firms' employment decisions.