Goenka, Aditya, Liu, Lin, Nguyen, Manh-Hung and Pang, Haokun (2025) Climate Change, Labor Market Frictions, and Inequality. TSE Working Paper, n. 25-1622, Toulouse

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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.

Item Type: Monograph (Working Paper)
Language: English
Date: March 2025
Place of Publication: Toulouse
Uncontrolled Keywords: Climate change, HACT model, Directed searc, Income inequality
JEL Classification: E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
J23 - Employment Determination; Job Creation; Demand for Labor; Self-Employment
J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.
J64 - Unemployment - Models, Duration, Incidence, and Job Search
Q54 - Climate; Natural Disasters
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse Capitole
Site: UT1
Date Deposited: 14 Mar 2025 10:15
Last Modified: 14 Mar 2025 10:15
OAI Identifier: oai:tse-fr.eu:130422
URI: https://publications.ut-capitole.fr/id/eprint/50595
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