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Changes in corporate employment under climate risk

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  • Li, Wanli
  • Chen, Junrui
  • Yuan, Kaibin

Abstract

Using observation data from the meteorological station closest to firms among 928 stations across mainland China, we construct firm-level physical climate risk indicators. We find that climate risks lead firms to tighten employment, which is more pronounced in labor-intensive firms, non-state-owned firms, firms with higher tax burdens, and regions with higher minimum wage standard. Mechanism tests indicate that climate risks reduce corporate employment by shrinking production scales, deteriorating business performance, and intensifying financing frictions. Furthermore, government efforts to build climate-resilient cities, invest in flood control and implement corporate tax reductions, along with the development of the insurance industry, can alleviate the adverse effects of climate risks on local firms’ employment. Firms can also address climate risks by enhancing financial flexibility and organizational resilience. Additionally, firms may also resort to wage reductions in response to climate risks, but whether they choose wage reductions or cutting employment depends on the flexibility to lower their existing wage levels.

Suggested Citation

  • Li, Wanli & Chen, Junrui & Yuan, Kaibin, 2025. "Changes in corporate employment under climate risk," Journal of International Money and Finance, Elsevier, vol. 157(C).
    • Handle: RePEc:eee:jimfin:v:157:y:2025:i:c:s0261560625001032
    DOI: 10.1016/j.jimonfin.2025.103368
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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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