Climate Change is expected to bring more frequent and intense storms and heat waves. Because we can expect this, we can also take steps to adapt and reduce the worst consequences on ourselves, our families, and our investments. If we do, the impact of climate change on our local economy could also shift due to our own actions to adapt. How much can we influence that economic impact? EPIC Scholar Esteban Rossi-Hansberg, the Glen A. Lloyd Distinguished Service Professor, and his co-author answer this question by modeling the effect of climate change on worker migration and investment decisions.

The researchers use data since 2000 at the county level and estimate the response from heat waves and storms on population, income per capita, and investments. They find that by 2023, workers’ could already expect average welfare losses of about 5 percent because of storms and heatwaves–with losses larger than 11 percent expected by 2100, implying an ongoing loss of more than $3,000 in consumption per year from 2023 onwards. Residents of certain areas lose much more. In coastal Louisiana, climate change reduces the consumption of workers by more than $9,000 per year, and home and business owners that hold capital lose in excess of $15,000 per year.

The local economic impacts from climate change, however, can shift depending on whether workers and investors anticipate losses and make changes such as moving or not investing in areas predicted to be hard hit. If the impacts of climate change are anticipated, counties that are heavily exposed to extreme heat and storms in the South-East would lose more than half of their population by 2100. For example, coastal counties in Florida lose most of their population, and the state as a whole loses 46 percent of its residents. By people leaving, the value of capital in what are expected to be hard-hit areas also decreases—hurting the economy in these heavily exposed areas. But the workers who leave and the regions they move to would benefit from these shifts—balancing out the economic impacts of climate change nationally.

Conversely, if residents of hard-hit areas did not anticipate climate change impacts, they would suffer the most because they failed to migrate or shift investments away from these areas. For example, without anticipation, the decline in population in parts of Florida is 15 percentage points lower by 2050. Consistently, people that stay face larger losses. In parts of Florida, Louisiana, South Carolina, and Texas the welfare implications for workers are more than 1.5 percentage points larger by 2050, which amounts to an additional loss of roughly $400 per year. 

Read More

Areas of Focus: Climate Change
Definition
Climate Change
Climate change is an urgent global challenge. EPIC research is helping to assess its impacts, quantify its costs, and identify an efficient set of policies to reduce emissions and adapt...
Climate Economics
Definition
Climate Economics
Climate change will affect every sector of the economy, both locally and globally. EPIC research is quantifying these effects to help guide policymakers, businesses, and individuals working to mitigate and...