Air Pollution Undermines Labor Productivity

(cc photo by Salim Virji)

You can make money by conducting industrial processes that pollute the air. But air pollution is unpleasant and bad. So part of what makes pollution so profitable is that the air you’re damaging is a commons. So you reap the profits, while everyone bears the cost. This is an inefficient outcome, which is why we need taxes and regulation. But is it “inefficient” merely in an aesthetic smog-is-ugly sense? Joshua S. Graff Zivin and Matthew J. Neidell investigate in “The Impact of Pollution on Worker Productivity” and find concrete economic harms through the mechanism of ill health:

Environmental protection is typically cast as a tax on the labor market and the economy in general. Since a large body of evidence links pollution with poor health, and health is an important part of human capital, efforts to reduce pollution could plausibly be viewed as an investment in human capital and thus a tool for promoting economic growth. While a handful of studies have documented the impacts of pollution on labor supply, this paper is the first to rigorously assess the less visible but likely more pervasive impacts on worker productivity. In particular, we exploit a novel panel dataset of daily farm worker output as recorded under piece rate contracts merged with data on environmental conditions to relate the plausibly exogenous daily variations in ozone with worker productivity. We find robust evidence that ozone levels well below federal air quality standards have a significant impact on productivity: a 10 ppb decrease in ozone concentrations increases worker productivity by 4.2 percent.

This is a badly under-done field of research. Most of the conventional examination of pollution controls adopts a costs versus benefits framework in which the benefits are balanced against economic costs. But across some margins, pollution reduction is pure economic benefit from a social point of view (albeit not from the point of view of individual polluters) which of course would tend to change the calculus. And in particular, where it’s possible to engaged in growth-enhancing pollution-reductions via taxes that allow us to get by with less in the way of other taxes, it’s a huge win.

Meanwhile, read my colleagues Susan Lyons and Jorge Madrid on asthma and the EPA’s proposed power plant air toxics standards. A country that can breath is going to be a more productive, higher wage, richer country.