Do Firms Mitigate Climate Impact on Employment? Evidence from US Heat Shocks
Using establishment-level data, we show that firms operating in multiple counties in the United States respond to heat-related damages by reallocating employment from affected to unaffected locations. This reallocation is also observed as an increase in job postings in unaffected locations, and at the extensive margin as opening of new establishments. The reallocation response intensifies with heat-related damage severity being acute, chronic and compound (with other natural disasters), and is especially pronounced among larger, financially stable firms with ESG-oriented investors. This firm-driven reallocation affects how heat shocks impact aggregate outcomes at the county level, including employment growth, wage growth, labor force participation, and establishment entry rate. Specifically, mitigation behavior by multi-establishment firms acts as a “heat insulator” for the economy, reducing the impact of heat shocks on aggregate employment and wage growth while redistributing economic activity across locations.
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