The impact of environmental pollution on labor supply: empirical evidence from China

The current study focuses on determining mediating effect using the fixed and instrumental variable models to understand how PM_2.5 affects labor supply. To approach study objectives, a 20-year dataset (from 2000 to 2019) of 287 Chinese prefecture-level cities were collected. To deal with potential endogeneity, the ventilation coefficient was used as an instrumental variable to identify the reverse causality between PM_2.5 and labor supply. Results depicted that the PM_2.5 pollution significantly and negatively impacts the labor supply. It was found that PM_2.5 indirectly reduced labor forces because of pollution-induced health losses. Moreover, when the pollution level was above 30 μg/m³, the PM_2.5 significantly reduced the labor supply. The result suggests that China's local and national governments should enact stringent policy measures to reduce air pollution.