Climate change and labor demand adjustment: Evidence from recruitment

Abstract

The impact of extreme heat on the labor market has been widely discussed, yet few studies have examined it from the perspective of labor demand of enterprises. Using city-level annual data from China spanning 2014 to 2020, this paper estimates the effect of extreme heat on enterprise labor demands. The empirical results indicate that increases in extreme heat significantly reduce the number of workers firms hire. We identify two potential channels underlying this effect: changes in firm costs and firm-level adaptation behaviors. Specifically, extreme heat causes firms to allocate more resources toward prevention, repair, and mitigation of climate-related risks, thereby crowding out investment in labor. Furthermore, as extreme heat reduces worker productivity, firms increasingly adopt industrial robots to substitute for human labor, thereby maintaining production stability. Extreme heat also induces changes in hiring structure and labor costs. Firms tend to hire more experienced workers and are more likely to offer high-temperature subsidies. Both pollution-intensive and clean industries exhibit significant responses in their hiring decisions to extreme heat. Finally, we find that the negative impact of extreme heat is mitigated in larger, longer listed, and state-owned enterprises.