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

Moderate effects of pollution on health may exert important influences on work. 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 a 19.7% decline in pollution, as measured by SO2, in the surrounding neighborhoods. The closure led to a 1.3 h (or 3.5%) increase in work hours per week. The effects do not appear to be driven by differential labor demand shocks nor selective migration.