Does environmental pollution reduce residents' income? Evidence from CFPS in China

Understanding the relationship between environmental pollution and residents' income is extremely important for promoting sustained progress and high-quality economic growth. This research examines the impact, mechanism, and heterogeneity of environmental contamination on residents' earnings by fusing the micro data from China Family Panel Survey with the macro data of government statistics. The results reveal that environmental degradation has a significantly negative impact on residents' individual income. Further research on the intermediary mechanism finds that environmental pollution plays a harmful role in residents' income by reducing residents' subjective well-being and labor employment. Besides, the income effect of environmental pollution is significantly heterogeneous among different regions and differentiated groups. The deteriorating environmental quality widens urban-rural income gap and increases wage inequality of inhabitants in eastern, central, and western regions of China. The gender income gap and the income disparity between different income brackets also expand with environmental deterioration. These findings not only prove that long-term development at the cost of the ecological environment is undesirable, but also demonstrate the important role of the improvement of ecological environmental quality in promoting human well-being.