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Air Pollution, Sorting and Human Capital

Paper Session

Saturday, Jan. 6, 2018 2:30 PM - 4:30 PM

Pennsylvania Convention Center, 204-B
Hosted By: Association of Environmental and Resource Economists
  • Chair: Reed Walker, University of California-Berkeley

The Long Shadow of Industrial Pollution: Environmental Amenities and the Distribution of Skills

Yatang Lin
London School of Economics


This paper presents theory and evidence on the role of environmental amenities in shaping
the competitiveness of post-industrial cities. I assemble a rich database at a fine spatial resolution to
examine the impact of historical pollution on the distribution of skilled workers and residents within
American cities today.

I find that census tracts downwind of highly polluted 1970s industrial sites were associated with higher
pollution levels in the 1970s but not after 2000. However, they were less skilled and had lower wage
and housing values in 2000, a pattern which became more prominent between 1980 and 2000. These
findings suggest the presence of skill sorting on pollution and strong subsequent agglomeration effects.

To quantify the contribution of different mechanisms, I build and estimate a multi-sector spatial
equilibrium framework that introduces heterogeneity in local productivity and workers' valuation for
local amenities across sectors, and allows initial sorting to be magnified by production and residential
externalities. Estimation of the model suggests that historical pollution is associated with lower
current productivity and amenity levels. The effects are more pronounced for productivity, more
skilled sectors and central tracts. I use the framework to evaluate the impact of counterfactual
pollution cuts in different parts of cities on nationwide welfare and the cross-city distribution of skills.

Air Quality and Manufacturing Firm Productivity: Nationwide Estimates for China

V. Brian Viard
Cheung Kong Graduate School of Business
Shihe Fu
Southwestern University of Finance and Economics
Peng Zhang
Hong Kong Polytechnic University


We provide nationwide estimates of air pollution’s effect on short-run labor productivity for manufacturing firms in China from 1998 to 2007. An emerging literature estimates air pollution’s effects on labor productivity but only for small groups of workers of particular occupations or firms. To provide more comprehensive estimates necessary for policy analysis, we estimate effects for all but some small firms (90% of China’s manufacturing output) and capture all channels by which pollution influences productivity. We instrument for reverse causality between pollution and output using thermal inversions.

Our causal estimates imply that a one μg/m3 decrease in PM2.5 (SO2) increases labor productivity by 0.011% (0.036%) with an elasticity of -0.58 (-0.54). Lowering PM2.5 (SO2) by 1% nationwide through methods other than reducing manufacturing output would generate annual productivity increases of CNY 74.1 (69.7) thousand for the average firm and CNY 11.8 (11.1) billion or 0.079% (0.075%) of GDP across all firms. Improving air quality generates substantial productivity benefits and these should be considered in evaluating environmental regulations and their effect on firm competitiveness.

Air Quality, Human Capital Formation and the Long-term Effects of Environmental Inequality at Birth

John Voorheis
U.S. Census Bureau


A growing body of literature suggests that pollution exposure early in life can have substantial long term effects on an individual’s economic well-being as an adult, however the mechanisms for these effects remain unclear. I contribute to this literature by examining the effect of pollution exposure on several intermediate determinants of adult wages using a unique linked dataset for a large sample of individuals from two cohorts: an older cohort born around the 1970, and a younger cohort born around 1990. This dataset links responses to the American Community Survey to SSA administrative data, the universe of IRS Form 1040 tax returns, pollution concentration data from EPA air quality monitors and satellite remote sensing observations. In both OLS and IV specifications, I find that pollution exposure at birth has a large and economically significant effect on college attendance among 19-22 year olds. Using conventional estimates of the college wage premium, these effects imply that a 10 μg/m3 decrease in particulate matter exposure at birth is associated with a $190 per year increase in annual wages. This effect is smaller than the wage effects in the previous literature, which suggests that human capital acquisition associated with cognitive skills cannot fully explain the long term wage effects of pollution exposure. Indeed, I find evidence for an additional channel working through non-cognitive skill—pollution exposure at birth increases high school non-completion and incarceration among 16–24 year olds, and that these effects are concentrated within disadvantaged communities, with larger effects for non-whites and children of poor parents. I also find that pollution exposure during adolescence has statistically significant effects on high school non-completion and incarceration, but no effect on college attendance. These results suggest that the long term effects of pollution exposure on economic well-being may run through multiple channels, of which both non-cognitive skills and cognitive skills may play a role.

The Impact of Indoor Air Pollution on Health Outcomes and Cognitive Abilities: Empirical Evidence from China

Yun Qiu
Jinan University
Feng-An Yang
Ohio State University
Wangyang Lai
Shanghai University of Finance and Economics


Many households in rural China still rely on burning dirty power sources such as coal and wood for heating and cooking, exposing them to various pollutants from incomplete fuel combustion and bad ventilation conditions. Although economics studies have examined the causes and health impacts of outdoor air pollution in China (Almond et al. 2009; Chen et al. 2013), few studies have precisely measured the negative impacts of indoor air pollution (IAP). We attempt to complement this literature by estimating the effect of the consumption of indoor dirty energy source on physical health outcomes and cognitive abilities. We use the China Health and Retirement Longitudinal Study (CHARLS) and the China Family Panel Studies (CFPS), which allow us to identify which power source each observation uses for cooking and heating at home. Using Propensity Score Matching method and including individual demographic variables, living style information, and city-level air pollution levels as observables, we estimate the effects of indoor combustion of dirty energy on health status and cognitive abilities. Our results suggest that elderly people who use dirty power sources at home are more likely to report poor health status and have lower cognitive ability scores. Children who are exposed to dirty energy sources are likely to incur more hospital visits and suffer from pneumonia. Our results are robust when using city fixed effects model or including a large set of control variables. To further alleviate the concern of the impacts of outdoor air pollution on our estimates, we restrict the sample to southern China, whose air pollution is less severe, and the estimates stay at similar magnitudes and become more significant. These results imply long-term negative effects of persistent exposure to the combustion of dirty power sources.
Christopher Timmins
Duke University
Tom Chang
University of Southern California
Reed Walker
University of California-Berkeley
Sefi Roth
London School of Economics
JEL Classifications
  • Q5 - Environmental Economics