IDEAS home Printed from https://ideas.repec.org/p/tse/wpaper/130422.html
   My bibliography  Save this paper

Climate Change, Labor Market Frictions, and Inequality

Author

Listed:
  • Goenka, Aditya
  • Liu, Lin
  • Nguyen, Manh-Hung
  • Pang, Haokun

Abstract

We model the impact of rising temperatures on labor productivity, labor market dynamics, and income inequality. Using a heterogeneous agent continuous-time (HACT) model with directed search, we analyze how temperature-induced productivity fluctuations influence the labor market, income and wealth in-equality, and wealth accumulation. The model features workers differentiated by wealth, productivity, and location, where temperature affects transitions be-tween high and low productivity states. Firms post fixed-wage contracts, and workers direct their job search across segmented labor markets. We calibrate the model using Vietnamese Labor Force data (2009-2018) matched with me-teorological records, capturing regional temperature variations. With increased temperatures, in low wage markets the ratio of vacancies to unemployed workers searching in those market falls, as labor productivity declines and falling wealth leads workers to direct their search to these markets when vacancies are also falling. The wage distribution shifts to the left, and average incomes and wealth fall. Climate-induced productivity shocks amplify income and wealth disparities as wealthier individuals are able to self-insure better against the income risk. The results underscore the role of climate change in shaping labor market inequality and provide insights into policy interventions that may mitigate its adverse effects.

Suggested Citation

  • Goenka, Aditya & Liu, Lin & Nguyen, Manh-Hung & Pang, Haokun, 2025. "Climate Change, Labor Market Frictions, and Inequality," TSE Working Papers 25-1622, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:130422
    as

    Download full text from publisher

    File URL: https://www.tse-fr.eu/sites/default/files/TSE/documents/doc/wp/2025/wp_tse_1622.pdf
    File Function: Full Text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Zhang, Peng & Deschenes, Olivier & Meng, Kyle & Zhang, Junjie, 2018. "Temperature effects on productivity and factor reallocation: Evidence from a half million chinese manufacturing plants," Journal of Environmental Economics and Management, Elsevier, vol. 88(C), pages 1-17.
    2. E. Somanathan & Rohini Somanathan & Anant Sudarshan & Meenu Tewari, 2021. "The Impact of Temperature on Productivity and Labor Supply: Evidence from Indian Manufacturing," Journal of Political Economy, University of Chicago Press, vol. 129(6), pages 1797-1827.
    3. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2012. "Temperature Shocks and Economic Growth: Evidence from the Last Half Century," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(3), pages 66-95, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xie, Victoria Wenxin, 2024. "Labor market adjustment to extreme heat shocks: Evidence from Brazil," Journal of Economic Behavior & Organization, Elsevier, vol. 222(C), pages 266-283.
    2. Jefferson Muñoz & Alex Perez & Jaime Carabali, 2025. "Choques climáticos, productividad y desempeño de las firmas de la industria manufacturera en Colombia," Borradores de Economia 1298, Banco de la Republica de Colombia.
    3. Gagliardi, Nicola & Grinza, Elena & Rycx, François, 2024. "The Productivity Impact of Global Warming: Firm-Level Evidence for Europe," GLO Discussion Paper Series 1485, Global Labor Organization (GLO).
    4. Ouyang, Yanyan & Wang, Shengquan & Weng, Dabin & Zhang, Wenhao, 2024. "Temperature and domestic trade: City evidence from China," Economic Analysis and Policy, Elsevier, vol. 83(C), pages 130-149.
    5. Qi, Yu & Zhang, Hongxuan & Shao, Shuai, 2024. "Valuing high temperature's fiscal costs: Evidence from China," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 134-152.
    6. Olivier Deschenes, 2023. "Temperature, productivity, and income," IZA World of Labor, Institute of Labor Economics (IZA), pages 505-505, February.
    7. Bui, Thanh-Huong & Bui, Ha-Phuong & Pham, Thi Mai-Anh, 2024. "Effects of temperature on job insecurity: Evidence from Australia," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 264-276.
    8. Oliver Schenker & Daniel Osberghaus, 2025. "International Trade and the Transmission of Temperature Shocks," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 88(4), pages 965-1007, April.
    9. Rigas, Nikos & Kounetas, Konstantinos, 2021. "The Role of temperature, Precipitation and CO2 emissions on Countries’ Economic Growth and Productivity," MPRA Paper 104727, University Library of Munich, Germany.
    10. Chen, Fanglin & Zhang, Jie & Chen, Zhongfei, 2024. "Assessment of the effects of extreme temperature on economic activity," Ecological Economics, Elsevier, vol. 222(C).
    11. Yanyan Ouyang & Chuanwang Sun & Xiaonan Wei & Chuangyu Xie, 2023. "Will Temperature Changes in the Host Country Reduce the Inflow of International Direct Investment? Micro Evidence from Chinese Listed Companies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 86(4), pages 781-806, December.
    12. Feriga,Moustafa Amgad Moustafa Ahmed Moustafa & Lozano Gracia,Nancy & Serneels,Pieter Maria, 2024. "The Impact of Climate Change on Work : Lessons for Developing Countries," Policy Research Working Paper Series 10682, The World Bank.
    13. Song, Malin & Wang, Jianlin & Zhao, Jiajia, 2023. "Effects of rising and extreme temperatures on production factor efficiency: Evidence from China's cities," International Journal of Production Economics, Elsevier, vol. 260(C).
    14. Jimmy Karlsson, 2021. "Temperature and Exports: Evidence from the United States," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 80(2), pages 311-337, October.
    15. Cai, Xiqian & Lu, Yi & Wang, Jin, 2018. "The impact of temperature on manufacturing worker productivity: Evidence from personnel data," Journal of Comparative Economics, Elsevier, vol. 46(4), pages 889-905.
    16. Park, R. Jisung & Pankratz, Nora & Behrer, A. Patrick, 2021. "Temperature, Workplace Safety, and Labor Market Inequality," IZA Discussion Papers 14560, Institute of Labor Economics (IZA).
    17. Guojin Chen & Wenpeng Chen & Jiaqi Wang & Xiangqin Zhao, 2023. "High‐temperature exposure risk, corporate performance and pricing efficiency of the stock market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3553-3583, September.
    18. Aguilar-Gomez, Sandra & Gutierrez, Emilio & Heres, David & Jaume, David & Tobal, Martin, 2024. "Thermal stress and financial distress: Extreme temperatures and firms’ loan defaults in Mexico," Journal of Development Economics, Elsevier, vol. 168(C).
    19. Xi, Chen & Xie, Wei & Chen, Xiaoguang & He, Pan, 2023. "Weather shocks and movie recreation demand in China," Energy Economics, Elsevier, vol. 127(PB).
    20. Acevedo, Sebastian & Mrkaic, Mico & Novta, Natalija & Pugacheva, Evgenia & Topalova, Petia, 2020. "The Effects of Weather Shocks on Economic Activity: What are the Channels of Impact?," Journal of Macroeconomics, Elsevier, vol. 65(C).

    More about this item

    Keywords

    Climate change; HACT model; Directed searc; Income inequality;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tse:wpaper:130422. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/tsetofr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.