Research / BFI Working Paper•Aug 01, 2018
The Impact of Temperature on Productivity and Labor Supply: Evidence from Indian Manufacturing
E. Somanathan, Rohini Somanathan, Anant Sudarshan, Meenu Tewari
Hotter years are associated with lower economic output in country-level data. We show that the effect of temperature on labor is an important part of the explanation. Using high-frequency micro data from selected firms in India, we find that worker productivity on hot days declines by 2 to 4 percent per degree celsius. Sustained heat also increases worker absenteeism. Using a national panel of manufacturing plants, we find similar temperature effects on output and show that these can be fully accounted for by reductions in the productivity of labor. Estimated effect sizes are consistent with studies that rely on country GDP panels.