Smoked Out: The Effect of Wildfire Smoke on Labor Market Outcomes∗

This paper examines the effect of wildfire smoke on labor markets. Wildfire smoke travels hundreds and even thousands of miles from its source, generating plausibly exogenous air pollution events in distant cities. Using annual income data, we find that workers experience earnings losses of 10% of one day’s income per day of smoke exposure. The effects at the national level aggregate to 0.3% of annual labor income, nearly 10 times expenditures on fire prevention and suppression. We find modest non-linearities, and the largest responses in well-off areas, measured by income or unemployment rates. As well, we document extensive margin and retirement responses, a novel channel in the literature. Although they affect a small share of people, extensive margin effects appear to explain a large share of the income response to air pollution events. We examine the implications for wildfire policy. ∗We thank David Card, Michael Greenstone, Nolan Miller, Edson Severnini and seminar participants at University of Chicago-EPIC, University of Illinois at Urbana-Champaign, Hong Kong University of Science and Technology, and the Midwestern Economics Association Annual Meetings for helpful comments and suggestions, and the W.E. Upjohn Institute for financial support. †University of Illinois at Urbana-Champaign and IZA, Corresponding Author: markborg@illinois.edu ‡University of Illinois at Urbana-Champaign and NBER §University of Illinois at Urbana-Champaign Air pollution has been shown to reduce hours worked and decrease both outdoor and indoor worker productivity.1 As well, air pollution may dampen demand for goods and services, such as entertainment, hospitality and tourism.2 However, existing studies focus on specific causal pathways and narrow settings, largely to address concerns about the confounding of pollution’s effects on labor markets with the direct effect of economic activity. As a consequence, far less is known about the overall magnitudes and population-level effects of air pollution on labor markets. In this paper, we extend the literature on the effects of air pollution on labor markets to the study of wildfire. Unlike variation used in previous studies on the effects of air pollution on labor markets, wildfire provides a plausibly exogenous source of air pollution events that are widespread and geographically dispersed, so much so that wildfire is an important policy issue in its own right. Wildfire burns a large and rising amount of land in the United States— an average of 6 million acres per year since the year 2000 and over 10 million acres in 2015, the worst fire season in 50 years—and the National Research Council estimates that each degree increase in temperature may lead to a quadrupling of acreage burned.3 Driven by shifting wind currents, wildfire smoke plumes can travel hundreds of miles, affecting cities at great distances from the fire itself. Most of the resulting smoke events are modest in size: the average effects on daily measures of the Environmental Protection Agency’s criteria pollutants range from one-third of a standard deviation in particulate matter smaller than 2.5 microns (PM2.5), one-quarter of a standard deviation in particulate matter smaller than 10 microns (PM10) and ozone (O3), to less than a tenth of a standard deviation in carbon monoxide (CO), nitrous oxide (NO2) and sulfer dioxide (SO2). Thus, the range of variation in air quality, and composition of wildfire smoke make wildfire smoke exposure a relevant natural experiment for environmental policy in the United States. Additionally, satellite images provided by the National Oceanic and Atmospheric Administration can be used to 1See Hanna and Oliva (2015) for effects on hours worked, Graff Zivin and Neidell (2012) for the productivity of agricultural workers, Chang et al. (2014) for the productivity of indoor pear packers, Li et al. (2015) for the productivity of Chinese manufacturers, Adhvaryu et al. (2016) for the productivity of Indian manufacturers, Chang et al. (2016) for the productivity of indoor call center workers, Lichter et al. (2015) for productivity of soccer players, and Archsmith (2015) for the decision-making of baseball umpires. 2See Graff Zivin and Neidell (2009) and Aldy and Bind (2014) on effects on demand for goods and services. 3The National Interagency Fire Center (NIFC) keep records of wildfires and acreage burned. Climate change is projected to increase temperatures and reduce precipitation, leading to longer and more intense fire seasons; see National Research Council (2011) for more details. 4These exposures are modest compared to daily variation in air quality, but if experienced for an entire year, they would reflect an increase of 3 standard deviation in PM2.5 and a 1.5 standard deviation increase in PM10 and O3 (ozone). Recent EPA rules emphasize particulate matter and ozone, the primary components of wildfire smoke plumes.