The Impact of Heat on the Welfare of Informal Sector Workers: Evidence from India
Heat reduces labor productivity and output in formal manufacturing, but almost nothing is known about its impacts on the earnings and welfare of workers in the informal sector that comprise the majority of the world’s labor force. This study reports the results from daily surveys of about 400 workers in two slums in Delhi for about a month in the summer of 2019, when temperatures were at the upper end of the global range. We use worker fixed-effect panel regressions that control for other cross-worker unobservable and behaviors to identify the effect of temperature on daily income, expenditure and health status. We find every degree Celsius increase in wet bulb temperature (WBT) being associated with a fall in daily gross earnings by 13%, a fall in net earnings (i.e., net of work-related expenditure) by 19%, and an increase in medical expenditure by 14%. A similar increase in WBT raises the probability of someone in the family being sick by 4% and reduces the probability of sleeping well by about 2%. Since most of the world’s labor force is in the informal sector in developing countries, these findings have potentially large welfare implications and also implications for adaptation and mitigation policies.
Jointly with E. Somanathan (ISI, Delhi) and Yonas Alem (University of Gothenburg, Sweden)