The Effect of Pollution on Labor Supply: Evidence from a Natural Experiment in Mexico

Hanna, Rema; Oliva, Paulina (2015)


Hanna, Rema, and Paulina Oliva. 2015. “The Effect Of Pollution On Labor Supply: Evidence From A Natural Experiment In Mexico”. The Journal Of Public Economics 122 (February 2015): 68-79.
Moderate effects 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. We find that a one percent increase in sulfur dioxide results in a 0.61 percent decrease in the hours worked. The effects do not appear to be driven by labor demand shocks nor differential migration as a result of the closure in the areas located near the refinery.