Climate Risk, Labor Market Consequences, and Corporate Labor Adaptation

Abstract

This paper studies how physical climate risk affects corporations through the labor channel. By quantifying occupational climate exposure, I document that climate-exposed jobs have shorter working hours, lower productivity, and higher employment (especially of part-time workers) as workforce supplements. Firms adapt to workforce-related climate risk by retaining more employees, increasing insurance, and expanding offshore inputs. I also explore various incentives and constraints for firms’ labor adaptation strategies and make causal inferences by studying physical and regulatory climate shocks. However, I find that climate-exposed firms suffer more workplace injuries and worse performance, especially when experiencing climate surprises, indicating limitations of adaptation.

Keywords: climate finance, labor finance, employee welfare, labor adaptation, firm performance

JEL Classification: G30; G32; J20; J28; J30; L25; Q50