<p>Efficient labor reallocation is crucial for mitigating the negative economic impacts of environmental regulations. Previous studies focused on the effects of environmental regulations on labor reallocation within firms and across industries; however, few studies have evaluated inter-city labor reallocation. This study applied a spatial difference-in-difference model to investigate the geographical labor reallocations resulting from China’s Clean Air Action (CAA). We found that the CAA changed the distribution of labor across cities: it decreased employment within cities subject to the CAA (treated cities), while increasing employment in non-treated cities adjacent to treated cities (adjacent non-treated cities). Cooperation between cities with respect to CAA implementation helped alleviate regulation-related employment drops. A city-industry heterogeneity analysis shows that the CAA also reshaped the distribution of employment across industries within treated cities and adjacent non-treated cities. Moreover, individual-level heterogeneity analysis indicates that the impact of CAA on workers’ employment location choices varies significantly by demographic characteristics, including gender, age, marital status, education level, household type, and fertility status.</p>