Pollution and Labor Productivity: Evidence from Chilean Cities
This paper is a work in progress and has not been submitted for editorial review. To access the full working paper, download the PDF on the left-hand sidebar.
This paper investigates the effects of pollution on labor productivity in Chile. Data on fine particulate matter pollution in Chile were collected and matched to sectoral labor productivity at the city level. The endogeneity between labor productivity and pollution is controlled for by instrumenting on the presence of coal and diesel power plants. The paper finds that pollution reduces labor productivity. A series of robustness checks demonstrate that pollution has a statistically significant effect on productivity when the analysis controls for labor costs and entry rates. The paper provides extensive evidence to support a causal interpretation of this finding. The identification strategy is based on a stylized macroeconomic model. The pollution elasticity of labor productivity is used to demonstrate how the co-benefits of reducing pollution can be incorporated into mitigation policies in a general equilibrium framework.
This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author and Rice University’s Baker Institute for Public Policy. The views expressed herein are those of the individual author(s), and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.