All I need is the air that I breathe…

[by ANNA GUEORGUIEVA and SOFIA ZHUKOVA  on  http://blogs.worldbank.orgCity governments invest a lot in job creation—they plan infrastructure, skills initiatives, and industry support with the goal to improve productivity and generate jobs and growth, especially in the high-skill sectors. Yet, there might be an important input to productivity that cities can pay more attention to: clean air.

Recent research suggests that a 10-unit increase in the air quality index decreases productivity by 0.35%. Seems marginal? This “productivity slow-down” costs the high-skill economy of China $2.2 billion per year for each additional 10 units of the air quality index.

The research in question studied the effect of air pollution on worker productivity in call centers in Shanghai and Nantong in China. The firm analyzed is Ctrip, one of the largest travel agencies in the country, employing more than 30,000 people. 50% of the workers’ pay is based on performance and the measures of productivity are very detailed and high frequency. The study concluded that there is a robust relationship between daily air pollution levels and worker productivity. On average, a 10-unit increase in the Air Quality Index (AQI) led to a 0.35% decline in the number of calls handled by a worker in a day at an AQI of 100. If we translate this to the entire Chinese high-skill industries, a 10-unit reduction of air pollution levels would increase the monetized value of improved productivity by $2.2 billion per year. 

How much is a 10-unit increase in AQI?  The AQI in China converts concentrations of six air pollutants into a single index. Ninety-eight percent of the time, the biggest pollutant is the particulate matter, or PM (both the larger PM10 and the smaller PM2.5), mainly from fossil fuel combustion. Particulate matter can be absorbed in both the blood stream, affecting cognitive functions, and the respiratory system, affecting pulmonary functions. It is ubiquitous and easily penetrates indoors. AQI values less than 100 are generally deemed acceptable, those between 100 and 150 are considered unhealthy for sensitive groups, and impacts on the general population begin to emerge at levels greater than 150.  

We know that particulate matter affects test scores, but this is the first research estimating its effect on high-skill job productivity. The impacts are not isolated to the most polluted cities—the effects manifest themselves at an AQI of 150, commonly found levels of pollution in major cities throughout the developing and developed world. For instance, the AQI in Los Angeles was over 100 for 90 days in 2014. Even though AQI in the United States is not directly comparable to that of China, if these 90 days were brought into compliance, the service sector productivity in the county of Los Angeles would have been $374 million larger.

The good news is that a city can both manage pollution and advance economic efficiency . A case in point is accessibility to people and places. Accessibility both reduces pollution and improves the efficiency of local economic activities. Research lead by Karen Seto of Yale University for the Fifth Assessment Report by the Intergovernmental Panel on Climate Change looks at urban form from four aspects: density, land use, connectivity, and accessibility. The research concludes that increased density is not necessarily sufficient for lowering urban emissions (closely linked to pollution) and that accessibility to people and places is in fact what best determines pollution among the four aspects. Accessibility is also a key determinant of the efficiency of local economic activities and a city‘s ability to attract companies and skilled workers.

These types of questions will be addressed by a multidisciplinary team at the World Bank from the Social, Urban, Rural and Resilience as well as the Environment and Natural Resources global practices under the umbrella of the Pollution Management and Environmental Health (PMEH) program. The team will support cities in addressing the effects of pollution on their competitiveness. City competitiveness is measured as a combination of economic growth (GDP per capita growth), job growth, and productivity growth.  The research will quantify the cost of pollution on companies’ productivity and their ability to attract talent. The team, in collaboration with leading researchers, will also assess how pollution affects the overall city competitiveness.  This research will provide new evidence of direct economic costs that are in addition to the health costs of air pollution. The team will work in close collaboration with several cities in studying these questions and will help city governments develop and implement policies to increase productivity while managing pollution.