The Labor Productivity Consequences of Exposure to Particulate Matters: Evidence from a Chinese National Panel Survey

A growing body of literature has documented the negative impacts of air pollution on labor productivity, especially the effects of fine particulate matter. In this paper, we build on this literature by dissecting two channels of how particulate matter affects labor productivity: decreasing labor supply through damaging the physical functioning of the human body, and decreasing the marginal productivity of labor through damaging the cognitive functioning of the human brain. Using the household panel survey from the China Health and Nutrition Survey (CHNS) spanning 2000 to 2015 and combining that information with remotely sensed data on exposure to particulate matter (PM2.5), namely, the most harmful air pollution, we find a significantly negative effect of PM2.5 (instrumented by thermal inversion) on labor productivity. We also find that workers who are male, without a college degree, and are employed in outdoor occupations are mainly affected by PM2.5 through decreasing working hours, whereas college-educated workers employed in indoor occupations are mainly affected by PM2.5 through decreasing unit wages. We provide suggestive evidence that health impacts are behind our measured labor-productivity losses as we find significantly lower metrics in physical activity and increasing disease prevalence under higher exposure to PM2.5.