Beating the Heat: Temperature and Spatial Reallocation over the Short and Long-run

Posted: 11 Jan 2019

See all articles by Christos Makridis

Christos Makridis

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Tyler Ransom

University of Oklahoma; Institute for the Study of Labor (IZA)

Date Written: December 31, 2018

Abstract

Does temperature affect real economic activity? Using the annual Current Population Survey between 1963 and 2015, we show that there is no association between temperature and earnings, hours, or output after controlling for time-invariant spatial heterogeneity and time-varying demographic factors. These results are robust to five separate sources of micro-data, different sampling horizons, functional forms, spatial measures of temperature, and sub-sets of the data. This paper studies the relationship between temperature and productivity across space and time. Motivated by these null results, we develop a spatial equilibrium model where temperature can affect not only firm productivity, but also individual locational choice. After estimating the model, we use it to disentangle the role of reallocation versus actual productivity losses in the U.S. economy between 1980 and 2015. Nearly all of the variation is driven by reallocation. We subsequently use the model to evaluate a counterfactual climate scenario and recover a new spatial equilibrium for the U.S. economy by 2050.

Keywords: climate, productivity, reallocation, weather, growth

JEL Classification: O44, J31, Q51, Q54, R11

Suggested Citation

Makridis, Christos and Ransom, Tyler, Beating the Heat: Temperature and Spatial Reallocation over the Short and Long-run (December 31, 2018). Available at SSRN: https://ssrn.com/abstract=3308629

Christos Makridis (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Tyler Ransom

University of Oklahoma ( email )

729 Elm Avenue
Norman, OK 73019-2103
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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