Labor Disutility in a Warmer World: The Impact of Climate Change on the Global Workforce
96 Pages Posted: 28 Sep 2022
Date Written: September 16, 2022
This paper develops the first globally comprehensive and empirically grounded estimates of worker disutility due to future temperature increases caused by climate change. Harmonizing daily worker-level data from seven countries representing nearly a third of the world's population, we first evaluate the causal effect of daily temperature on labor supply, recovering an inverted U-shaped relationship where extreme cold and hot temperatures lead to labor supply losses for workers in weather-exposed industries. We then develop the first micro-founded, global estimates for how future climate change will impact workers, accounting for expected shifts in the global workforce towards less weather-exposed industries. Interpreting labor supply impacts of climate change through a simple theoretical framework, we monetize the implied disutility to workers of a warmer climate, a welfare cost not captured in any existing estimates. Under a high emissions scenario, we estimate the increase in labor disutility is valued at roughly 1.8% of global GDP in 2099, with damages being especially large in today’s poor and/or hot locations while cold locations benefit. Finally, we estimate that the release of an additional ton of CO2 today will cause expected labor disutility damages of $17.0 under a high emissions scenario and $10.8 under a moderate scenario, using a 2% discount rate that is justified by US Treasury rates over the last two decades. Accounting for uncertainty in these marginal damages when individuals are risk averse increases their value by 31% (high emissions scenario) and 62% (moderate scenario) under a standard parameterization of the utility function.
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