The Impact of Temperature on Productivity and Labor Supply: Evidence from Indian Manufacturing

Summary:

• In hotter years, countries tend to produce less economic output. A number of factors might be at play: Crops don’t grow as well when it is warm, heat-related illnesses or even death may increase, or people may become less productive on hot days.
• This study examines the impact of temperature on worker productivity and absenteeism using data from India, the third largest economy in the world. The study puts together data from individual workers as well as factories, spanning labor-intensive and highly automated manufacturing processes.
• Productivity drops by as much as 4 percent per degree when temperatures rise above 27° Celsius (80° Fahrenheit) in workplaces requiring manual labor. In highly automated settings, this effect is not observed.
• A 1-degree increase in the ten-day temperature average raises the probability that a worker will be absent by as much as 5 percent. Absenteeism increases in both the labor-intensive and automated manufacturing processes.
• Lower productivity and increased absenteeism influence the output of factories and the economy as a whole. When the average daily high over the year rises by 1 degree, output falls by about 3 percent. This decline is large enough to explain the entire reduction in India’s economic output in hot years.
• When employers cool the workplace they can prevent productivity losses, but it does not prevent workers from staying home during hot spells. 7. To sustain and grow worker productivity, businesses and governments must adapt to climate change. Climate control, such as air conditioning, is an expensive solution and may still be only a partial fix. In the long-run manufacturing sectors may migrate to cooler climates, or automation may increase to make up for less productive human employees