Climate Change and Labor Markets in Rural Mexico: Evidence from Annual Fluctuations in Weather

This paper evaluates the effects of annual fluctuations in temperature and precipitation on labor allocation in rural Mexico. We use a 28-year panel of individuals to investigate how people adjust their sector and location of work in response to year-to-year variation in weather. Controlling for state-year and individual fixed effects, we find that individuals are less likely to work locally in years with a high occurrence of extreme heat. This reduction in labor occurs for both agricultural and non-agricultural jobs, with larger reductions among wage workers. Extreme heat early in the year or for individuals located close to the U.S. border increases the likelihood that individuals respond by migrating to the United States. Under two medium-emissions climate change scenarios, our results imply that increased temperatures will lead to a 1.2-3% decrease in local employment and a 1-2% increase in domestic migration from rural to urban areas. These results provide an important example of how climate change could impact rural labor markets in developing countries.