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

CID Working Paper No. 225

Rema Hanna and Paulina Oliva
August 2011


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.

JEL subject codes: O0,Q0,Q5,Q53