Wildfires, Smoky Days, and Labour Supply

We study the impact of air pollution on labor supply in Chile. We use the exogenous incidence of wildfires between 2010 and 2018 to identify the causal impact of air pollution on labor supply. We complement the literature that focuses on health or worker productivity and empirically estimate the economic costs of air pollution. We adopt a reduced form approach to estimate the economic impact of experiencing an additional smoky day on the number of hours worked, based on the random assignment of the day of visit for the National Labor Survey and the exogenous occurrence of wildfires. We find that a marginal increase of air pollution due to an extra smoky day leads to a 2.6 percent reduction in hours worked for the average Chilean worker. The effect is more substantial for male workers, mainly involved in outdoor tasks (such as agriculture) and poor households, where the negative effect of air pollution is up to four times higher. These results complement existing productivity results, suggesting that air pollution may have a more critical impact on production than previously thought.