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The Cost of Air Pollution for Workers and Firms

Author

Listed:
  • Marion Leroutier
  • Hélène Ollivier

Abstract

This paper shows that even moderate air pollution levels, such as those in Europe, harm the economy by reducing firm performance. Using monthly firm-level data from France, we estimate the causal impact of fine particulate matter (PM2.5) on sales and worker absenteeism. Leveraging exogenous pollution shocks from local wind direction changes, we find that a 10 percent increase in monthly PM2.5 exposure reduces firm sales by 0.4 percent on average over the next two months, with sector-specific variation. Simultaneously, sick leave rises by 1 percent. However, this labor supply reduction explains only a small part of the sales decline. Our evidence suggests that air pollution also reduces worker productivity and dampens local demand. Aligning air quality with WHO guidelines would yield economic benefits on par with the costs of regulation or the health benefits from reduced mortality.

Suggested Citation

  • Marion Leroutier & Hélène Ollivier, 2025. "The Cost of Air Pollution for Workers and Firms," CESifo Working Paper Series 11785, CESifo.
    • Handle: RePEc:ces:ceswps:_11785
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    File URL: https://www.ifo.de/DocDL/cesifo1_wp11785.pdf
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    More about this item

    Keywords

    cost of air pollution; absenteeism; firm performance.;
    All these keywords.

    JEL classification:

    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • I10 - Health, Education, and Welfare - - Health - - - General

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