Working Paper: NBER ID: w31967
Authors: Viral V. Acharya; Abhishek Bhardwaj; Tuomas Tomunen
Abstract: How do firms mitigate the impact of rising temperatures on employment? Using establishment-level data, we show that firms operating in multiple counties in the United States respond to heat shocks by reducing employment in the affected locations and increasing it in unaffected locations, whereas single-location firms simply downsize. Workforce reallocation, aimed at preventing heat-related decline in labor productivity, is stronger among larger, financially stable firms with more ESG-oriented investors. The scale of this response increases with the severity of climate disasters and is aided by credit availability and competitive labor markets. Climate risk management by firms mitigates the impact of heat shocks on aggregate employment but induces a spatial redistribution of economic activity.
Keywords: Climate Change; Employment; Heat Shocks; Firms; Economic Activity
JEL Codes: D22; E24; G31; J21; L23; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| the associated costs (D23) | firms (L20) |
| multilocation firms (F23) | employment growth (O49) |
| one standard deviation increase in firm exposure to heat (Q52) | employment growth in single-location firms (L26) |
| 1% increase in the peer shock measure (C92) | employment growth (O49) |
| larger, less leveraged firms with climate-concerned investors (G39) | workforce reallocation (J63) |
| employment reallocation (J63) | aggregate employment (E10) |