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

Hotter years are associated with lower economic output in developing countries. We show that the effect of temperature on labor is an important part of the explanation. Using microdata from selected firms in India, we estimate reduced worker productivity and increased absenteeism on hot days. Climate control significantly mitigates productivity losses. In a national panel of Indian factories, annual plant output falls by about 2% per degree Celsius. This response appears to be driven by a reduction in the output elasticity of labor. Our estimates are large enough to explain previously observed output losses in cross-country panels.

Automated summary

Hotter years in developing countries lead to lower economic output, with temperature affecting labor productivity and absenteeism. Climate control can effectively mitigate productivity losses, and for every degree Celsius increase, annual plant output falls by around 2% in Indian factories.