The current study focuses on determining mediating effect using the fixed and instrumental variable models to understand how PM2.5 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 PM2.5 and labor supply. Results depicted that the PM2.5 pollution significantly and negatively impacts the labor supply. It was found that PM2.5 indirectly reduced labor forces because of pollution-induced health losses. Moreover, when the pollution level was above 30 μg/m3, the PM2.5 significantly reduced the labor supply. The result suggests that China's local and national governments should enact stringent policy measures to reduce air pollution.
Keywords: Environmental pollution; Health shock; Labor supply; Mediating effect; PM2.5; Ventilation coefficients.
© 2022. The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature.