Stage‐Specific Effects of Extreme Temperatures on Rural Labour Reallocation in China

Mitigating agricultural losses caused by extreme temperatures presents a global challenge. Using household‐level data on corn farmers in northern China from 2009 to 2017, this paper examines how farmers mitigate welfare losses caused by extreme temperatures by reallocating labour from farm to off‐farm sectors, accounting for the heterogeneity across crop growth stages during which extreme heat occurs. We find that extreme temperatures increase the labour supply in migrant off‐farm employment during the initial stage of the growing season, shift labour from corn cultivation to local off‐farm employment during the mid‐season and do not significantly impact labour allocation in the final stage. These labour shifts are primarily driven by production risks associated with yield losses and harvest failures, which reduce agricultural returns. Heterogeneity analysis reveals that farm households engaged in part‐time farming and those with low dependency are more likely to use labour reallocation as an adaptation to extreme temperatures due to lower mobility frictions. Our back‐of‐the‐envelope welfare calculations indicate that labour reallocation from agriculture to off‐farm employment, induced by extreme heat, mitigates up to 60.29% of agricultural losses. Ignoring this labour reallocation may overestimate the effect of extreme temperatures on farmers' welfare losses.