Does Exposure to PM2.5 Increase the Likelihood of Early Retirement in Middle-Aged Individuals? Evidence from Chinese Data

Health is one of the most critical factors that affects retirement behavior, and poor health may lead to early retirement among middle-aged and older adults. In China, where the population is aging rapidly, early retirement has significant implications for the economy. Recent studies have shown that air pollution, particularly PM2.5, can cause various illnesses, such as respiratory diseases, cardiovascular diseases, high blood pressure, and diabetes. In this paper, we analyze the effects of PM2.5 on the retirement and health of middle-aged and elderly people, assuming that the effects of air pollution on retirement are highly nonlinear and different for farmers and non-farmers. To control for potential endogeneity, we use 2SLS estimation. The regression results for non-farmers show that higher PM2.5 concentrations increase the probability of heart-related diseases and early retirement behavior. Specifically, we found that a 10 microgra per cubic meters(about one standard deviation) per cubic meter increase in PM2.5 concentration is associated with a 58% increase in the probability of heart-related diseases and a 57% increase in early retirement. This implies that roughly 12.1 million people could continue participating in the labor market if the government can reduce PM2.5 concentration by 10 microgram per cubic meter across the country. For farmers, we found that higher PM2.5 concentration is associated with a higher probability of lung-related diseases, but we did not find evidence that it increases early retirement. For both non-farmers and farmers, we did not find evidence that a higher PM2.5 concentration decreases financial wealth. These findings suggest that higher air pollution deteriorates the health of non-farmers, increases the disutility of work, and induces early retirement but does not affect the financial wealth of farmers and non-farmers.