Poster Paper: Labor Supply Adaptations to Climate Change in Developing Countries: Evidence from the Colombian Caribbean

Thursday, November 6, 2014
Ballroom B (Convention Center)

*Names in bold indicate Presenter

Maria Cecilia Acevedo, Harvard University
How do households adapt to climate change in developing countries where perfect insurance is absent and communal insurance do not work given the collective exposure to the same shock? In this project, I draw upon weather anomalies in the Colombian Caribbean to study labor markets adaptations within households and to identify the bearers of shocks arising from floods.

I perform econometric analysis of labor market equations to estimate the effect of extreme rainfall events on labor supply outcomes for adults and children. In particular, I study the effect of floods on child labor and the quality of adult employment and income. My analysis control for municipality indicators that absorb time-invariant characteristics of the municipalities where workers live and year indicators that control for common shocks to all municipalities in the same year.

I match individual labor market outcomes collected by the Departamento Administrativo Nacional de Estadistica (DANE) during the rounds of 2001-2010 with NASA’s satellite rainfall data. This data is rich in both temporal and spatial dimension, allowing for fine-grained analysis of how the extreme precipitation event associated with La Niña that occurred in 2010, the worst in Colombia in the last 40 years, impacted individuals’ labor decisions across different municipalities through the year (IDEAM, 2010).

This project is important for at least three reasons. It focuses its attention on labor supply in the developing world – the primary source of household income throughout the world.  It also studies directly how parental (dis)investments may respond to idiosyncratic shocks due to floods and droughts. Given the substantial investments made by parents and governments in child development and the policies targeted towards climate change adaptation and mitigation, this relationship requires further consideration. Thirdly, household allocation of adult and child labor in response to precipitation represents an avenue for exploring potential adaptations that may minimize or worsen the welfare effects from climate change.

My econometric results show that floods measured by extreme rainfall events compared to usual seasonal rainfall have important heterogeneous effects on the labor market of the Colombian Caribbean. Unemployment raises across all population groups: men, women, urban and rural samples, and this effect is statistically significant and economically meaningful. However, those who stay in the labor market observe positive labor income gains and some modest increases in hours worked. Men and rural workers benefit the most from floods with increases up to 7% in their real weekly wage whereas women experience small, if at all positive, positive changes in wages.

My evidence points to a larger probability of minor workers as a consequence of extreme rainfall shocks, even though this seems to be a compositional effect rather than an absolute increase in child labor. That is, the proportion of children in the total pool of workers increases even though there is no evidence of an increase in the likelihood that a child works. This may seem puzzling but is mainly the consequence of a raise in adult unemployment, and therefore a decrease in the proportion of adults in the total pool of workers.