Agriculture workers, particularly those in developing countries, are among those most vulnerable to temperature increases associated with climate change.
Even temporary spikes can leave these workers unemployed for several months and, if they have nowhere else to go, can have devastating consequences.
University of Virginia economist Jonathan Colmer wanted to understand more about what happens to agricultural workers when they are not able to find work in the agricultural sector, and how the economic and public policy environment might affect their opportunities to manage the economic consequences of unemployment. He recently shared his findings in a video published by VoxDev, a platform for economists, policymakers, businesses and others working on key policy issues in developing countries.
For his paper, Colmer studied data from 640 districts in India from 2000 to 2008 to see how year-to-year changes in temperature affected the employment opportunities of workers in agriculture and how labor market regulations affected the propensity of firms in non-agricultural sectors to provide alternative employment opportunities.
Below, Colmer explains what he found.
Q. Why did you choose to study India?
A. Among developing countries, India has very high-quality, wide-ranging data available to researchers at the firm and district level, and it also experiences a lot of variation in temperature. Because labor market policy varies across states, I could also study how the labor regulation environment might affect the degree to which workers can manage the economic consequences of agricultural productivity shocks.
Q. What does your data reveal about the fate of agriculture workers displaced by temperature changes?
A. Perhaps unsurprisingly, I found that temperature increases significantly reduce the share of employment in agriculture, because farms produce less and therefore need fewer workers. However, I also found that this decrease was offset by increases in the share of employment in non-agricultural sectors, specifically in manufacturing.
There was no significant change in unemployment in response to temperature increases, so it seems that the vast majority of displaced agriculture workers were able to find work in other sectors, which is encouraging. I estimate that in the absence of this labor reallocation, the total losses to GDP within an Indian district would have been about 40 percent higher.
Q. Why was the manufacturing sector able to absorb these workers so well?
A. First, there is external demand for manufacturing products and an external supply of food. Indian districts are integrated into national and international markets. Consequently, a reduction in productivity for one sector (agriculture) increases the relative competitiveness of other sectors (e.g. manufacturing) due to reductions in input costs – labor is cheaper.
The revenue from increased production in manufacturing can then be used to import food from districts that experienced a boom in agricultural productivity. If demand were entirely local – i.e. if there was no trade across locations – then workers would be much less able to find work in other sectors, as there would be less local demand for manufacturing goods and consequently less demand for workers. Because the manufacturing sector is a tradeable sector, it doesn’t rely on local demand for its goods. This means that the manufacturing sector can expand when agriculture is less productive and contract when agriculture is booming.
However, the ability of the manufacturing sector to absorb workers varied across different states, depending on the labor regulation environment.
Some states, such as West Bengal, have very rigid labor markets and strict rules about firing workers. In those markets, there is less incentive for manufacturing firms to hire displaced workers in response to year-to-year changes in labor demand. However, in markets with more flexible hiring and firing practices, firms are better placed to take advantage of the increase in labor supply.
Collectively, these findings suggest that the combination of flexible labor markets and integrated markets may be important for managing the economic consequences of climate change.
Q. What lessons does your research hold for policymakers?
A. I don’t think that this research should lead us to a prescriptive policy per se. For example, it’s not clear to me that these findings would be transferable to sub-Saharan Africa, where markets are less integrated. To me, the most important take-home point is that the economic and policy environment can affect our ability to manage the economic consequences of environmental change.
When economies are less diversified, less integrated into national and international markets, and when firms are less able to respond to changes in the economic environment, then we should seek to understand why this is. Once we have identified bottlenecks, it is important to understand the degree to which policy may be effective in relaxing any such constraints.