In the middle of the most devastating pandemic India has seen in a century, it can be hard to think of the other challenges that lie ahead of us. Lest we forget though, there is arguably no country in the world that has seen as much economic damage from the pandemic as India. Recovery will not be quick or easy, and the policy challenge over the next decade is to deliver stable growth, likely driven by the manufacturing sector. Any such growth will also have to tackle the imminent threat of the climate crisis.
A new research study published in the Journal of Political Economy flags a worrying threat for India. With academic colleagues in the United States and India, I gathered over 15 years of data on the output of factories across India and data on the daily productivity and attendance of selected factory workers in different Indian cities. We combined this information with daily information on weather conditions across the country and then linked the two pieces of data using a set of rigorous statistical models.
We found that high temperatures consistently hurt economic output by reducing the productivity of human labour. During hot spells, people were less productive at work and more likely to be absent. At an individual level, this is not surprising but aggregated together, we found that factories produced about two per cent less revenue for every degree rise in annual temperature. It is probably not a coincidence that previous scientific work over the last decade has found that countries consistently show lower Gross Domestic Product (GDP) output and growth in hot years. Unproductive labour may be a big part of the explanation.
The biggest negative effects of temperature appeared to be on labour-intensive plants. This is a problem for India because our manufacturing competitiveness in the future will have to rely on cheap labour. As temperatures rise, and workers grow less efficient, we risk losing out on the razor-thin margins that characterise a competitive, global economy. In effect, India is staring at a “heat tax” on labour, a tax that will slowly rise over time.
Is climate control the answer? Our research suggests it may not fully solve the problem. For one thing, air-conditioning substitutes the virtual heat-tax for a very real electricity bill. In large factories, this may be a worthwhile trade, but in the small-scale, informal sector, it is unlikely that air-conditioning is always feasible. Furthermore, even with climate-control, we find that temperature may still increase absenteeism. This might be because workers – or their families – are still exposed to severe heat at home.