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Productivity Impact of Temperature Change: Evidence from the Indonesian Household-based Enterprises Survey

Author

Listed:
  • Elan Satriawan

    (Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada)

  • Esa Azali Asyahid

    (Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada)

  • Wisnu Setiadi Nugroho

    (Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada)

  • Rimawan Pradiptyo

    (Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada)

  • Ranjan Shrestha

    (Department of Economics, College of Arts and Sciences, The College of William & Mary)

Abstract

This study examines the impact of temperature on labor productivity in Indonesian household-based enterprises. We combine data on micro and small enterprises from the Indonesian Family Life Survey with historical temperature data to estimate the effect of an increase in temperature on labor productivity, proxied by revenue per worker. Our empirical strategy relies on plausibly exogenous temporal variations in temperature within each geographic area. The results indicate that holding an enterprise’s production function fixed, a 1 °C increase in the 12-month average temperature reduces revenue per worker by 16%. Additional analyses using deviations from long-term monthly average temperatures, which reduce seasonality concerns, yield similar results, as year-month fixed effects are already incorporated. The findings highlight the significant impact of temperature changes on labor productivity in vulnerable economic sectors, emphasizing the need for targeted policies to enhance climate resilience in Indonesia's household-based enterprises.

Suggested Citation

  • Elan Satriawan & Esa Azali Asyahid & Wisnu Setiadi Nugroho & Rimawan Pradiptyo & Ranjan Shrestha, 2025. "Productivity Impact of Temperature Change: Evidence from the Indonesian Household-based Enterprises Survey," Gadjah Mada Economics Working Paper Series 202507007, Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada.
    • Handle: RePEc:gme:wpaper:202507007
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    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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