Do Firms Adapt to Rising Temperatures? Evidence from Establishment-Level Data

Abstract

This paper examines firms’ adaptation to long-term changes in climatic conditions. Using detailed information on establishments owned by U.S. public firms, we show that higher abnormal temperatures over the previous five years in a county lead to a significant reduction in local employment and the number of establishments. The decline in employment and establishments is larger for firms in non-tradable and consumer-oriented sectors, suggesting that firms’ adaptation is largely due to a decline in local consumer demand. Additional tests show that prolonged high temperatures lead to lower consumption, higher unemployment rate, lower wage, and more out-migration across regions.