The Effect of Extreme Hydro-Meteorological Events on Labor Market Outcomes: Evidence from the Caribbean

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How do urban households adapt to climate change in developing countries where perfect insurance is absent and communal insurance is lacking given the collective exposure to the same shock?

I match individual labor market information from adults and children from a sample of 800 thousand individuals during the period of 2001-2010 with NASA’s daily rainfall data at the municipal level during the same period.  This data is rich in both temporal and spatial dimension, allowing for fine-grained analysis of how extreme precipitation events impacted individuals’ labor supply decisions and income in urban populations in the developing world.  This project focuses its attention on labor supply in the developing world – the primary source of household income throughout the world. Also, household allocation of adult and child labor in response to precipitation represents an avenue for exploring potential adaptations that may minimize or worsen the welfare effects from climate change. My econometric results indicate that the welfare impacts of extreme weather are statistically significant, economically meaningful and heterogeneous across genders and members of the family. Firstly, the probability of unemployment due to living in a municipality that experienced at least one flood increases by 6.2 percentage points net of observable determinants of productivity and outside options, as well as for municipality, month and year fixed effects.  This effect is twice as large for women (7 pp) than for men (4 pp).  The marginal effect of one additional extreme hydro-climatic event on labor supply and labor income is negative in the short term, and the effect of a negative hydro-climatic event is larger for labor income than hours worked. This has an important implication for welfare: to smooth income, individuals need to work more hours at a lower rate after extreme weather. Hours worked and labor income fully recover after 13 months of one extreme rainfall event. Families cope with tighter labor markets and falling labor incomes using a set of alternatives. First, adult individuals try to smooth shocks by becoming “forced entrepreneurs”, but men are more successful than women at finding income through this source: self-employment rises 7 percentage points for men and 2 percentage points for adult women. Finally, minors aged 12-17 enter the labor force. My statistical analysis shows that children’s labor force participation jumps 1.4 percentage points for boys and 4.7 percentage points for girls in response to floods. 

Last updated on 01/12/2016