  This paper examines how investment in environmentally sustainable practices
impacts employment and labor productivity growth of firms in transition
economies. The study considers labor skill composition and geographical
differences, shedding light on sustainability dynamics. The empirical analysis
relies on the World Bank-s Enterprise Survey 2019 for 24 transition economies,
constructing an environmental sustainability index from various indicators
through a Principal Components Analysis. To address endogeneity, a battery of
fixed effects and instrumental variables are employed. Results reveal the
relevance of environmental sustainability for both employment and labor
productivity growth. However, the significance diminishes when addressing
endogeneity comprehensively, alluding that any relation between environmentally
sustainable practices and jobs growth is more complex and needs time to work.
The decelerating job-creation effect of sustainability investments is however
confirmed for the high-skill firms, while low-skill firms benefit from labor
productivity gains spurred by such investment. Geographically, Central Europe
sees more pronounced labor productivity impacts, possibly due to its higher
development and sustainability-awareness levels as compared to Southeast Europe
and the Commonwealth of Independent States.
