Keeping Heads Above Water: Evidence from a Labor Retention Scheme in Response to Floods in Brazil

We study the labor market effects of a major flood disaster in Brazil and whether a temporary labor-retention schemePrograma Emergencial de Apoio Financeiro (PEAF)mitigated these effects by providing wage subsidies while requiring firms to retain covered workers. Drawing on administrative data, we use a matched event-study design that compares workers in flood-affected establishments with and without PEAF coverage to matched workers in non-affected establishments. Direct flood exposure reduced formal employment among unprotected workers by about 2 percentage points and increased job switching, indicating rapid reallocation to other formal employers. PEAF increased employment by 2.4 percentage points relative to the counterfactual of flood exposure without program protection. It also reduced reliance on unemployment insurance, consistent with its effect on employment retention. Earnings effects are more nuanced: PEAF mitigated unconditional earnings losses through employment preservation, but earnings among retained workers declined, consistent with downward compensation adjustment within continuing jobs. Effects are concentrated in very small establishments and in sectors more exposed to disruption. The results show that labor-retention schemes can preserve employment after climate disasters, but that need not imply full income protection, a difference that is central to the design of policies aimed at mitigating the economic consequences of climate shocks.