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CEP Discussion Paper
Temperature, Labor Reallocation and Industrial Production: Evidence from India
Jonathan Colmer
May 2018
Paper No' CEPDP1544:
Full Paper (pdf)

JEL Classification: Q56; O13; J21; F16

To what degree can labor reallocation mitigate the economic consequences of weather-driven agricultural productivity shocks? I estimate that temperature-driven reductions in the demand for agricultural labor in India are associated with increases in non-agricultural employment. This suggests that the ability of non-agricultural sectors to absorb workers may play a key role in attenuating the economic consequences of agricultural productivity shocks. Exploiting _firm-level variation in the propensity to absorb workers, I estimate relative expansions in manufacturing output in more flexible labor markets. Estimates suggest that, in the absence of labor reallocation, local economic losses could be up to 69% higher.