The 1975 Black Frost: Shocks to Capital and the Spatial Distribution of Workers

53 Pages Posted: 7 Oct 2018

See all articles by Bruno Barsanetti

Bruno Barsanetti

Northwestern University, Judd A. and Marjorie Weinberg College of Arts and Sciences, Department of Economics

Date Written: September 12, 2018

Abstract

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 ParanĂ¡, 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

Barsanetti, Bruno, The 1975 Black Frost: Shocks to Capital and the Spatial Distribution of Workers (September 12, 2018). Available at SSRN: https://ssrn.com/abstract=3248784 or http://dx.doi.org/10.2139/ssrn.3248784

Bruno Barsanetti (Contact Author)

Northwestern University, Judd A. and Marjorie Weinberg College of Arts and Sciences, Department of Economics ( email )

Evanston, IL
United States

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