Climate Shocks and Unemployment Claims

Using a US state-level climate risk measure and the local projections (LP) framework, this study analyzes both linear and asymmetric effects of climate shocks on unemployment claims. The results provide strong evidence that climate shocks significantly increase both initial and continuing claims, with the linear estimates showing a stronger impact on initial claims. In the nonlinear framework, where climate risk and economic condition indices are used as regime-switching variables, we also find asymmetric effects of climate shocks across both types of claims. Specifically, climate shocks exert stronger pressure on initial claims under high-climate-risk regimes, while continuing claims respond more under low-risk regimes. When the economic condition index is applied as a regime-dependent variable, climate shocks are more influential during expansions than during recessions, when claims are already elevated and labor markets are slack. Overall, the findings highlight that climate shocks affect labor markets in complex, state-dependent ways, offering valuable insights for policymakers aiming to design effective mitigation strategies and enhance labor market resilience.