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The Cost of Air Pollution for Workers and Firms

26 June 2024

The Cost of Air Pollution for Workers and Firms

This paper (joint with Hélène Ollivier (PSE)) shows that even moderate levels of air pollution, such as those found in Europe, harm the economy by decreasing firm performance.

We estimate the causal effect of fine particulate matter pollution (PM2.5) on firms’ monthly sales and worker absenteeism using matched employer-employee data from France and granular measures of air pollution from 2009 to 2015. We exploit variation in air pollution induced by changes in monthly wind directions at the postcode level. We find that a 10 percent increase in monthly PM2.5 exposure decreases sales in the following two months by 0.4 percent on average. This effect hides heterogeneous across economic sectors, with lower effects for manufacturing, construction and business-to-business trade and services, and larger effects for retail and business-to-consumer services, serving a local demand. Concurrently, worker absenteeism due to sick leave increases by 1 percent, underscoring the negative effects of air pollution on workers’ health.

Yet sales losses are an order of magnitude larger than we would expect if worker absenteeism was the only mechanism channelling sales decrease. We provide suggestive evidence for two other channels at play: a detrimental effect of air pollution on the productivity of non-absent workers, and on local demand. Our findings suggest that reducing air pollution in line with the World Health Organization’s guidelines generates economic benefits largely exceeding the cost of regulation in France.

About Marion

Marion Leroutier is an applied environmental economist focusing on two major environmental issues, ambient air pollution and climate change. She's currently a postdoctoral fellow at the Institute for Fiscal Studies. In September 2024, She will join ENSAE and CREST in Paris as an Assistant Professor. Marion's research agenda has two angles. In a first angle, she investigates the societal cost of air pollution and the causal impact of environmental and climate policies, with an emphasis on health, productivity and distributional effects. In a second and more early-stage angle, she studies the determinants of support for green policies, in particular the role of social norms and identity.

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