Marion Leroutier(CREST-ENSAE): "The Cost of Air pollution for Workers and Firms".

Abstract:

This paper 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 monthly firms’ sales and worker absenteeism in France, using administrative data on 160,000 firms representing half of the country’s GDP. We exploit within-municipality variation in air pollution induced by changes in monthly wind direction. We find that a 10 percent increase in firms’ monthly PM2.5 exposure decreases sales in the following two months by 0.4 percent on average, with heterogeneous effects across economic sectors. Concurrently, sick leave increases by 1 percent, highlighting the negative effects of air pollution on workers’ health. Yet sales losses are an order of magnitude larger than we would expect if pollution-induced worker absenteeism was the main underlying channel. We provide suggestive evidence that air pollution also affects firm performance via a decrease in the productivity of non-absent workers and in local demand. Our results suggest that reducing air pollution in line with the World Health Organization’s guidelines would generates economic benefits largely exceeding the cost of environmental regulation and on par with the health benefits from avoided mortality among the elderly.