Adapting to Climate Change: Long-Term Effects of Drought on Local Labor Markets
33 Pages Posted: 7 Jan 2014
Date Written: December 2013
We examine the long-term impacts of drought on local labor markets in Brazil. Using rainfall data going back over a century, we build contemporaneous and historical drought indices for more than 3,000 local areas, and examine them in conjunction with five waves of population census data spanning 1970-2010. Results from a difference-in-differences design reveal that increased drought frequency in the previous decade reduces local value added, employment and wages in the agricultural sector; leads to job losses and pay cuts in the local manufacturing and services sectors; and induces out-migration, especially among younger cohorts, leading to relative population decline. These findings are in line with standard general-equilibrium theory featuring imperfect labor mobility across space.
JEL Classification: J61, N96, O15, Q54, R11, R23
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