Distributional effects of the increasing heat incidence on labor productivity

Abstract

This paper examines how temperature affects worker productivity beyond the usual “on average” analysis, with a particular focus on distributional impacts of the increasing heat incidence across high- and low-productivity areas. Using a recentered influence function regression approach, we estimate unconditional reduced-form effects of a location shift in the temperature distribution—consistent with climate change trends—on the labor productivity distribution across counties in the contiguous U.S. We find that labor productivity is largely insensitive to changes in the frequency of cool-to-moderate maximum daily temperatures. However, as temperatures shift above $24^{\circ }\text{C}$, the effects on productivity turn increasingly negative, albeit with their magnitudes attenuating as a county’s productivity rank rises. While highly productive locations in the top 5% are not adversely impacted even by the hottest temperatures, permanently increasing the incidence of $\ge 36^{\circ }\text{C}$ temperatures just by a day lowers productivity at the bottom vigintile by a nontrivial 0.22% per year, an equivalent of 10.5 hours of work by a minimum-wage worker. As temperatures continue to rise, not only does worker productivity worsen on average, but the cross-county dispersion therein widens too. Given existing climate forecasts, we predict that future extreme temperatures would further deepen worker productivity inequality.