What you breathe makes you poor: The effect of air pollution on income

Abstract

While several studies have examined the impacts of air pollution on various aspects, limited research has focused on its causal effect on personal income. Using the matched data from a household survey and satellite-derived air pollution data, we present compelling evidence indicating that a 1 μg/m3 increase in annual PM2.5 density leads to an approximate 0.8% decrease in individual income. Moreover, the detrimental effect of air pollution becomes evident when it surpasses the national safety standard of 35 μg/m3. The underlying mechanism suggests that air pollution results in a decline in health, subsequently affecting work productivity and ultimately leading to reduced personal income. This negative impact disproportionately affects individuals whose income relies heavily on labour productivity, particularly those in vulnerable populations with limited skills and lower education levels. These findings underscore the potential influence of air pollution on labour market outcomes.