The Impact of Air Pollution on Labor Supply in China

A growing body of literature demonstrates that air pollution has negative impacts on human health, cognitive ability, and labor productivity, but little is known about the effect of chronic air pollution on labor supply decisions. We use restricted-access individual-level panel data from the China Family Panel Survey (CFPS), paired with sub-district level remote-sensing estimates of air pollution, to evaluate the impact of chronic exposure to fine particulate matter (PM2.5) on an individual’s hours worked. We exploit within-individual changes in air pollution, and fixed effects estimates indicate that an increase of 1 μg/m3 in PM2.5 reduces an individual’s average hours worked by about 14 min per week. We then leverage the city-level roll-out of air pollution monitoring and information provision to test hypotheses about the underlying mechanisms. We show that individuals with poor health respond to changes in PM2.5 the most. For individuals who are environmentally unaware, this effect is mostly through an impact of pollution on health, while individuals who are environmentally aware engage in avoidance behavior. Finally, the roll-out of monitoring and information provision at the city level plays an important role in raising awareness and individuals’ responsiveness to pollution.