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Pollution and Labor Supply

Pollution and Labor Supply - The Eect of Pollution on Labor...

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The E ff ect of Pollution on Labor Supply: Evidence from a Natural Experiment in Mexico City Rema Hanna Harvard Kennedy School, NBER, BREAD, and IZA Paulina Oliva University of California Santa Barbara PRELIMINARY AND INCOMPLETE Abstract Moderate e ff ects of pollution on health may exert an important influence on labor market decisions. We exploit exogenous variation in pollution due to the closure of a large refinery in Mexico City to understand how pollution impacts labor supply. The closure led to an 8 percent decline in pollution in the surrounding neighborhoods. Controlling for week fixed e ff ects, neighborhood fixed e ff ects, and neighborhood-specific year trends, we find that a one percent increase in sulfur dioxide results in a 0.61 percent decrease in the hours worked. The e ff ects do not appear to be driven by labor demand shocks nor di ff erential migration as a result of the closure in the areas located near the refinery. 1 Introduction In the global fight against climate change, developing nations have emerged as a top priority. How- ever, imposing environmental regulations can entail significant capital costs on business, potentially We thank Jonathan Hill, Katherine Kimble, and Sebastian Bustos for outstanding research assistance. We thank Maria Teresa Garrido, Luisa Soto and Gerardo Guillen for their cooperation for this project. We also thank Alberto Abadie, David Card, Stefano DellaVigna, Asim Khwaja, Sendhil Mullainathan, Ben Olken and Rohini Pande for helpful comments. Funding for this project comes from the Science Sustainability Program at the Center for International Development at Harvard, the Harvard Center for Population and Development Studies, and UCMexus. 1
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hindering economic growth. For developing countries that have experienced high growth due to a rise in manufacturing and exports, fears abound that increased regulation could greatly reduce their competitiveness. As a result, many developing nations have been hesitant to enter international climate change treaties or are lax about enforcing those that they have entered into. Environmental regulations, however, can also potentially provide local benefits in the form of reduced health care expenditures and increased worker productivity (Dessus and Connor, 2003; and Burtraw et al., 2003). 1 Despite the importance of understanding how large these potential benefits are, few credible studies exist due to limited data availability. The foremost papers in the literature have focused primarily on understanding the e ff ects of pollution on health and mortality, particularly infant mortality (e.g. Currie and Neidell, 2005; Chay and Greenstone, 2003). A related literature tries to infer the total cost of high pollution levels from changes in property values (e.g. Chay and Greenstone, 2005; Greenstone and Gallagher, 2008).
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