Heads up: Does air pollution cause workplace accidents?

Literature has shown that air pollution can have short- and long-term adverse effects on physiological and cognitive performance. In this study, we estimate the effect of increased pollution levels on the likelihood of accidents at construction sites, a significant factor related to productivity losses in the labor market. Using data from all construction sites and pollution monitoring stations in Israel, we find a strong and significant causal effect of nitrogen dioxide (NO${}_{\text{2}}$), one of the primary air pollutants, on construction site accidents. We find that a 10-ppb increase in NO${}_{\text{2}}$ levels increases the likelihood of an accident by as much as 25 %. Importantly, our findings suggest that these effects are non-linear. While moderate pollution levels, according to EPA standards, compared to clean air levels, increase the likelihood of accidents by 138 %, unhealthy levels increase it by 377 %. We present a mechanism where the effect of pollution is exacerbated under conditions of high cognitive strain or reduced awareness. Finally, we perform a cost-benefit analysis, supported by a nonparametric estimation calculating the implied number of accidents due to NO${}_{\text{2}}$ exposure, and examine a potential welfare-improving policy to subsidize the closure of construction sites on highly polluted days.