Impact of air pollution on labor productivity: Evidence from prison factory data

Abstract

This study examined the causal relationship between air pollution and labor productivity, by adopting prison factory data for a perfect measure of labor productivity. To address the endogeneity of air pollution, an instrumental variable strategy was used. The results showed that a 10-unit increase in air pollution index led to a significant decrease in labor productivity by 4%. A nonlinear relationship between air pollution and labor productivity was also suggested, which implied that the extreme air pollution reduced labor productivity heavily. This study emphasized the negative externality of air pollution on labor productivity.