This paper assesses the welfare implications of air pollution induced labor productivity improvements in a computable general equilibrium framework. We document that labor market productivity changes associated with a one μg/m3 reduction in PM2.5 can have a large welfare impact. Variation in the existing econometric evidence produces a range of possible welfare effects equal to approximately $950-3000 per household per year which is 50-160% of the estimated mortality impacts. Accounting for general equilibrium effects increases the welfare effect by roughly 45% relative to a back of the envelope estimate. Allowing for sector-specific shocks or impacts to leisure preferences have little effect on aggregate results. We also find that the aggregate welfare effect is approximately proportional to the shock size.
