Earnings Consequences of the Clean Air Act

...a 10 percent decrease in TSPs in the year of birth is associated with a 1 percent increase in annual earnings at age 30.

The 1970 Clean Air Act Amendments (CAAA) in the United States limited the maximum allowable concentration of airborne total suspended particulates (TSP). As a result, the Environmental Protection Agency designated counties, or more specifically, air regions, as having "nonattainment" status under the new regulations if the monitored TSP concentrations exceeded the limit of 75 micrograms per cubic meter (µg/m3). Counties for which TSP levels were below the threshold were designated as "attainment" counties. Comparisons between attainment and nonattainment counties in the years after implementation of the regulation show a reduction in nonattainment counties' ambient TSP levels of about 10 percent.

In Every Breath You Take - Every Dollar You'll Make: The Long-Term Consequences of the Clean Air Act of 1970 (NBER Working Paper No. 19858), Adam Isen, Maya Rossin-Slater, and W. Reed Walker exploit this regulatory variation in TSP levels over time and across counties to examine whether differences in exposure to TSPs at birth are correlated with long-run human capital measures at age 30. The authors link county of birth to administrative earnings records for residents of 24 states and conclude that a 10 percent decrease in TSPs in the year of birth is associated with a 1 percent increase in annual earnings at age 30. This translates to about $260 per year in 2008 dollars. Most of the difference in earnings capacity results from differences in the number of quarters worked rather than from differences in full-time wages. In 1972, there were about 1.5 million births in nonattainment counties, implying a cumulative earnings increase of about $6.5 billion annually per cohort. Assuming these effects are persistent over the lifetime earnings profile, the authors calculate that improved early-life air quality is correlated with total lifetime earnings gains of $4,300 per individual.

The authors use administrative earnings records from the Census Bureau's Longitudinal Employer-Household Dynamics file to link city and state of birth with later life earnings measures. The authors combine the administrative records with data from the Bureau of Economic Analysis's Regional Economic Information System and the National Center for Health Statistics to control for observable, time-varying determinants of later life outcomes that may be correlated with pollution in the year of birth. They find no evidence that family and child characteristics are differentially changing across counties in a manner correlated with the policy implementation.

-- Linda Gorman