Economic Costs Of Heat Stress Induced Reductions In Worker Productivity Due To Climate Change In A Developing Country

We provide evidence on the likely benefits of reducing the burden of heat in the labor market. We consider two different measures of wet bulb globe temperature (WBGT) to estimate heat stress under the shade and the sun for 5 climate models and two future scenarios as of 2035, 2050 and 2100. Using Paraguay’s household survey, we calculate the share of people employed per working age population in agriculture and construction, industry, and services. Then, we consider a standard workability-temperature loss function for the average worker of each sector and exposure to WBGT and level of work effort. Using the discounted present value added per worker along with GDP projections, we assess the productivity losses attributed to climate change. When comparing 2050 with 2020, productivity losses due to climate change are 1.4% for agriculture and service, 0.3% for industry and 0.05% for services under the mildest scenario, and 3.7%, 1.1% and 0.2%, respectively if the future is hotter. Losses vary geographically and across climate models. When forecasting people employed and value added per worker, productivity losses attributable to climate change, when comparing 2050 with 2020, range between 1.4% and 2.1% of GDP under the mildest and harshest climate scenarios, respectively.