The Effect of Extreme Temperature Shocks on the Type of Firm Labor Hired

Abstract

The article estimates the effect of extreme temperature on labor in the manufacturing and services sectors in the Philippines. We use firm-level survey and temperature data and exploit the exogenous annual variation of maximum temperature. We find a rise in the projected annual increase of extreme temperature from climate change by 0.08℃, reduces employment by 14 workers for a firm with 136 employees in export-focused industries in dry regions. Male, temporary, skilled workers in large, technology-dependent, non-food firms, are most affected by extreme temperature. The mechanism is the reduction in capital investment leading to a complementary reduction in labor hired.