Labor market adjustment to extreme heat shocks: Evidence from Brazil

Despite ample evidence on the labor productivity impact of heat shocks, little is known about how heat shocks affect labor adjustment over time. This paper uses administrative employer- employee linked data from Brazil to examine margins of labor market adjustment to extreme heat. Tracking workers over time and across job spells, I find that quarterly heat shocks increase the probability of formal manufacturing layoffs. In the medium run, there is limited intersectoral and interregional reallocation, as well as a significant failure rate to reallocate back to formal sectors, indicating job transitional costs. Finally, the employment impact of heat shocks is larger for workers in more routine manual task intensive, less abstract occupations.