The 1975 Black Frost: Shocks to Capital and the Spatial Distribution of Workers
53 Pages Posted: 7 Oct 2018
Date Written: September 12, 2018
In agriculture, capital such as perennial and tree plants are particularly vulnerable to extreme weather events, such as droughts and frosts. What are the effects of shocks like these on the farm sector and on the spatial distribution of farm labor? I study the 1975 frost that destroyed coffee trees in the southern Brazilian state of Paraná, and from which the regional coffee industry never recovered, as a shock to a sector specific capital. With a difference-in-differences specification based on the density of coffee trees before the frost, I show that the capital shock resulted in a large and persistent displacement of agricultural workers and population, and on persistently lower land prices. Local labor markets adjusted on quantities, not wages: as a consequence of the frost, coffee producing regions experienced a large out-migration. This is consistent with elastic local labor supplies due to highly mobile farm workers. Furthermore, although the frost led only to a temporary contraction of the production possibility sets, the persistent decline in farm employment suggests a long-run contraction of labor demand by the farm sector. I argue that strategic complementarities in crop choice and the updating of beliefs on weather risk are the most likely explanations for the long-run contraction of labor demand.
Keywords: capital destruction, natural disasters, economic geography, migration, labor demand
JEL Classification: O13, J43, R11
Suggested Citation: Suggested Citation