Human capital impairment or air pollution discount? Air quality and expected job seeking

Air quality affects labor supply decisions through two primary channels of health impairment and compensating differentials. Our extended Roy/Borjas model, which reconciles both channels, demonstrates that poor air quality discourages high-skilled job seekers and reduces their expected wages through compensation effects. Using a unique online resume database from China in 2016, our findings support the compensation theory, revealing that high-skilled job seekers are more inclined to migrate from more polluted cities, significantly lowering wage expectations in exchange for improved air quality in the job-changing context. Conversely, those who intend to remain in polluted areas expect wage premiums to offset environmental disamenities. These findings persist across alternative specifications, various robustness tests, and rigorous endogeneity models. Furthermore, we reveal that the compensation effects are more pronounced among high-skilled job seekers with greater risk awareness and weaker wage-bargaining power. This study contributes to the literature by revealing the economic consequences of environmental quality on labor market dynamics.