Climate Change and Labor Reallocation: Evidence from Six Decades of the Indian Census

Abstract

How do rising temperatures affect long-term labor reallocation in developing economies? In this paper, we examine how increases in temperature impact structural transformation and urbanization within Indian districts between 1951 and 2011. We find that rising temperatures are associated with lower shares of workers in non-agriculture, with effects intensifying over a longer time frame. Supporting evidence suggests that local demand effects play an important role: declining agricultural productivity under higher temperatures reduces the demand for non-agricultural goods and services, which subsequently lowers non-agricultural labor demand. Our results illustrate that rising temperatures limit sectoral and rural-urban mobility for isolated households.

Keywords: climate change, structural transformation, labor reallocation, urbanization, migration

JEL Classification: O12, O13, Q54, R23