The Labor Market Toll of Air Pollution

This paper follows an instrumental variable strategy using wind currents and meteorological data to evaluate the impact of air pollution on several Brazilian labor market outcomes. I find that a change in one standard deviation of small particulate matter (PM 2.5) leads to a statistically significant fall in the overall labor market size of 7.6%, a reduction in hiring of 3%, a fall in quitting of 0.05 percentage points, and a rise in wages of 1.4%. There is no statistically significant change in firing rates. The wage and firing rate results are less reliable since they vary based on specification. Older workers, women, and low-skill employees are more heavily impacted than others. I confirm this effect by exploiting a 2009 pollution control policy. With a synthetic difference in difference strategy, I find that the policy resulted in statistically significant improvements in air pollution and employment outcomes roughly 3 times the size of my IV estimation.