Promoting common prosperity is a core goal of the Chinese path to modernization, and the improvement of labor income share holds great significance. Environmental regulations aim to achieve a win-win situation for both ecological protection and sustainable development. Against this backdrop, a question worth exploring in depth is whether environmental regulations are conducive to safeguarding the interests of workers and thus serve as a key factor in explaining the rebound of labor income share? Specifically, the Mandatory Cleaner Production Audits (MCPA), as a means of full-chain environmental governance, requires enterprises to implement energy-saving and emission-reduction measures across all stages of production. This transformation will undoubtedly reshape the allocation mode and efficiency of production factors in enterprises, and have a profound impact on labor income share.

This paper leverages five batches of the list of key enterprises implementing MCPA and passing it released by the Ministry of Ecology and Environment. Matching the list with the China Industrial Enterprise Database, it employs a multi-period DID model to investigate the impact of MCPA on the labor income share of enterprises. The results demonstrate that MCPA significantly promotes the increase in labor income share, and this impact exhibits significant heterogeneity depending on regional human capital levels and corporate financing constraints. Mechanism testing reveals that MCPA positively affects labor income share by optimizing the labor factor allocation structure and enhancing ESG performance. Further extended analysis finds that MCPA increases the labor income share of ordinary employees, contributing to greater internal income distribution fairness. Moreover, promoting labor market integration strengthens the positive effect of MCPA on labor income share.

The marginal contributions of this paper are as follows: First, it innovatively expands the scope of the impact of MCPA to the field of income distribution, identifies and quantifies its net effect on labor income share, and provides micro-level empirical evidence for China to actively promote the construction of ecological civilization and achieve the goal of common prosperity simultaneously. Second, it focuses on the uniqueness of mandatory clean production, delves into its underlying mechanisms, and constructs a new analytical paradigm that extends from full-chain environmental governance to labor income distribution relationships.