Do temperature shocks affect non-agriculture wages in Brazil? Evidence from individual-level panel data

Abstract

The relationship between temperature and agriculture outcomes in Brazil has been widely explored, overlooking that most of the country's labor force is employed in nonagriculture sectors. We use monthly individual-level panel data spanning January 2015 to December 2016 to ask whether temperature shocks impact non-agriculture wages in formal labor markets. Our results show that a 1oC shock increases wages where climate are colder, but reduces wages where climate are hotter. We calculate that wages fall 0.42% on average, an income loss equivalent to 0.06% of GDP annually. Assuming future temperatures rise uniformly by 2oC, and that no adaptation occurs, we expect annual income losses five times larger. The heterogeneous effects we find also suggest that weather vulnerability may deepen existing income inequalities.