Every breath you take, every dollar you’ll make: The long-term consequences of the Clean Air Act of 1970

Adam Isen, Maya Rossin-Slater, Reed Walker

There is growing evidence that adverse infant health can have lasting effects on human capital formation and economic outcomes in adulthood. Among others, the poor environmental conditions have been linked to increased infant mortality and poor health. This column looks at the long-run effects of early-life pollution exposure. Using the Clean Air Act enacted in 1970 as a policy experiment, the study finds an association between reduced pollution and labour-market outcomes 30 years later. Reduced-pollution increases labour-force participation rate for affected individuals, which translates into a 1% increase in annual earning for an average individual in a cohort.

Despite being among the wealthiest countries in the world, the US fares relatively poorly by standard indicators of early childhood health. According to the US Centre for Disease Control and Prevention, the US infant mortality rate was ranked 32nd among the 34 OECD countries in 2010 (Barfield et al. 2013). Similarly, the World Health Organization reports that the US preterm birth rate (defined as birth at less than 37 weeks of gestation) ranks 130th out of the 184 countries with available data (Howson et al. 2012).

The disadvantages in infant health in the US could have far-reaching implications for future economic growth. Mounting evidence across several disciplines suggests that adverse infant health outcomes can have lasting effects on human capital formation and adult economic outcomes (Almond and Currie 2011). Within the field of economics, recent studies have highlighted the particularly important role that poor environmental conditions play in affecting infant health. Increased levels of air pollution have been linked to reductions in infant birth weight and increases in infant mortality (Chay and Greenstone 2003, Currie and Neidell 2005, Currie, Neidell, and Schmieder 2009, Currie and Walker 2011).

The long-run effects of early-life pollution exposure

While this emerging body of evidence suggests a robust relationship between air pollution and infant health, we know relatively little about the persistence or long-run implications of early life pollution exposure. If pollution affects infant morbidity, to what extent do these environmental insults persist into later life? In our paper, titled “Every Breath You Take—Every Dollar You’ll Make: The Long-Term Consequences of the Clean Air Act of 1970”, we attempt to answer this question by examining a group of individuals who were exposed to high levels of air pollution both in-utero and shortly after birth, and comparing their age 30 outcomes to a similar set of individuals who did not experience high levels of pre- or post-natal pollution.

The primary challenge in studying these questions is that exposure to air pollution is not random. In fact, lower-income, less-educated, and minority individuals are much more likely to live in polluted environments relative to their more advantaged counterparts (Currie 2011).

As such, comparing the outcomes of children born to women who experienced different levels of environmental toxins during pregnancy is problematic as the women exposed to more pollution likely face many other disadvantages that could have independent influences on their children’s outcomes.

A second empirical challenge stems from a data constraint—there are few datasets in the US that link information on individuals’ conditions at birth with their adult outcomes.

Our paper addresses both of these challenges by combining a newly available administrative data resource with a policy experiment in the early 1970s that generated large changes in ambient pollution levels in hundreds of counties in the US. The 1970 Clean Air Act Amendments imposed county-level restrictions on the maximum-allowable concentrations of total suspended particulates (TSP). As a result, the set of counties that exceeded these new restrictions (nonattainment counties) were forced to reduce their TSP concentrations, while counties that had air pollution levels below the regulatory ceiling (attainment counties) were not legally required to change their TSP concentrations. This legislation induced substantial variation in county-level pollution changes over this time period. We combine this policy experiment with newly available administrative data from the US Census Bureau's Longitudinal Employer Household Dynamics file that allows us to observe adult outcomes linked to location and exact date of birth for 5.7 million individuals born around the time of the policy experiment. As outcomes, we focus on measures of labour market performance at age 30 that broadly encompass:

Changes to cognitive and non-cognitive skill formation that may have been ‘imprinted’ in early childhood;

Any persistent health effects attributable to early-life air pollution exposure; and

Any reinforcing or compensatory parental investments.

As such, our outcomes represent quantifiable summary measures that may be particularly relevant for cost-benefit calculations in environmental policy design.

We examine whether cohorts exposed to lower levels of ambient air pollution in-utero and in early childhood exhibit improved labour-market outcomes measured 30 years later. Our baseline empirical specification compares cohorts of individuals born just before and after the mandated improvements in air quality in nonattainment counties, using cohorts born in attainment counties as a counterfactual control group. While nonattainment status is not randomly assigned, we show that observable characteristics of nonattainment and attainment counties in the years prior to regulation are similar in both levels and, more importantly, trends.

We find a strong association between ambient air pollution in a cohort's year of birth and labour market outcomes measured 30 years later. We first show that nonattainment status is associated with an over 10% reduction in ambient TSP levels in the years after the regulation went into effect. We then show that this regulation-induced reduction in air pollution in the year of birth is associated with an increase in the labour force participation rate for affected cohorts some 30 years later. This estimated impact translates to an increase in annual earnings of about 1% for the average individual in a cohort. Assuming a constant earnings effect over the lifecycle, our results suggest that the cumulative lifetime income gain is approximately $4,300 in present value terms (using a 5% annual discount rate). This calculation implies that the present discounted total wage bill attributable to the improvements in early life air quality amounts to about $6.5 billion for each affected cohort. We view these estimates as potential lower bounds on the true value due to various sources of bias that would tend to attenuate our baseline results. Our findings suggest that the long-run impacts of elevated pollution levels for infants, conditional on survival, may be as large, or larger, than the short-run impacts on infant mortality examined in previous research (e.g., Chay and Greenstone 2003).

Concluding remarks

While our study provides new estimates of the impacts of early-life air quality on long-run economic outcomes, it also raises important questions that might motivate future research. Future work should explore in more detail the mechanisms by which these estimated changes in human capital accumulation occur, ideally studying the impacts on health and cognitive ability throughout childhood and adolescence. It would also be interesting to explore the differences in impacts of early-life air quality across family circumstances to help inform our understanding of human capital production and the design of targeted and cost-effective policies. With the growing availability of linkages across various administrative datasets in the US, this seems like a fruitful area for future research.

Disclaimer: Research results and conclusions expressed are those of the authors and do not necessarily reflect the views of the US Treasury Department or the US Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed.

References

Almond, Douglas. and Janet Currie (2011), “Human Capital Development Before Age 5,” in The Handbook of Labor Economics, ed. Orley Ashenfelter and David Card (Elsevier), 1315-1486.

Barfield, Wanda et al. (2013), CDC Grand Rounds: Public Health Approaches to Reducing US Infant Mortality, Atlanta: US Centers for Disease Control and Prevention, 62(31): 625-628.

Chay, Ken and Michael Greenstone (2003), “The Impact of Air Pollution on Infant Mortality: Evidence from Geographic Variation in Pollution Shocks Induced by a Recession,” The Quarterly Journal of Economics, 118(3): 1121-1167.

Currie, Janet (2011), “Inequality at Birth: Some Causes and Consequences,” The American Economic Review, 101(3): 1-22.

Currie, Janet and Matt Neidell (2005), “Air Pollution and Infant Health: What Can We Learn from California’s Recent Experience?” The Quarterly Journal of Economics, 120(3): 1003-1030.

Currie, Janet, Matt Neidell and Johannes Schmieder (2009), “Air Pollution and Infant Health: Lessons from New Jersey,” Journal of Health Economics, 28(3): 688-703.

Currie, Janet and W Reed Walker (2011), “Traffic Congestion and Infant Health: Evidence from E-ZPass,” American Economic Journal: Applied Economics, 3(1): 65-90.

Howson, Christopher et al. (2012), Born Too Soon: The Global Action Report on Preterm Birth, Geneva: World Health Organization.