When Temperatures Rise: Heat Stress and Labor Demand in India's Informal Sector

Informal enterprises employ most of India's non-agricultural workforce, yet little is known about how they cope with rising temperatures. Combining satellite-derived temperature data with roughly 1.7 million firm records from five rounds of India's unincorporated-enterprise surveys (2010-2024), we estimate the effect of heat stress on informal-sector labor demand. We find that greater exposure to elevated temperatures reduces labor demand: firms employ fewer workers and hire less. The decline is accompanied by lower turnover, value added, and labor productivity, together with shorter working hours and fewer operating months, suggesting that heat induces firms to contract both the scale and intensity of production. The adverse employment effects are strongest among employer firms, manufacturing and service enterprises, and businesses operating outside the household, and have intensified over time. Finally, drawing on the Periodic Labour Force Survey, we show that labor-force participation does not fall while real wages decline-the signature of a demand contraction, not a supply withdrawal.