Do Firms Adapt to Rising Temperatures? Evidence from Establishment-Level Data
61 Pages Posted: 6 May 2020 Last revised: 23 Aug 2021
Date Written: August 20, 2021
Using detailed information on establishments owned by U.S. public firms from 1990 to 2012, we show that higher abnormal temperatures over the previous five years in a county lead to a significant reduction in local employment and the number of establishments. The decline in employment and establishments is larger for firms in non-tradable sectors and consumer services and retailing industries, and when managers are likely to care more about global warming. In addition, we find that establishments located in abnormally hot counties seek to hire new workers with greater education and IT skills. Our findings are consistent with the notion that it is the declining local consumer demand, rather than deteriorating employee productivity, that drives firms’ responses. Overall, we provide large-sample evidence on firms’ adaptation to climate change and the resultant impacts on the local economy.
Keywords: High temperatures, climate change, employment, upskilling, economic establishments, adaptation
JEL Classification: G40, G41, Q54
Suggested Citation: Suggested Citation