The hidden cost of air pollution on European productivity

Air pollution entails significant economic costs through its adverse effects on worker productivity. Using firm-level data covering more than 2.5 million firms across 22 European countries over the period 2000-2022, this Policy Brief shows that a 1 µg/m³ increase in PM2.5 concentration reduces labour productivity by 0.55%. Given the pace of air quality improvements observed in Europe in recent years, cleaner air may account for around one-third of labour productivity growth between 2011 and 2022. The effects are particularly pronounced in construction and in sectors with a higher share of high-skilled workers, reflecting both greater physical exposure and the sensitivity of cognitive tasks to air pollution. The analysis further shows that productivity losses are driven primarily by high-pollution days rather than annual average exposure alone. This Policy Brief discusses the implications for policy design, with particular attention to measures that reduce high-pollution episodes, support productivity growth and strengthen economic convergence across regions.