March 2008

No. 3407: How Hurricanes Affect Employment and Wages in Local Labor Markets

published in: American Economic Review, 2008, 98 (2), 49-53

This paper adopts a generalized-difference-in-difference (GDD) technique outlined in Ariel R. Belasen and Solomon W. Polachek (IZA Discussion Paper #2976) to examine the impact of hurricanes on the labor market. We find that earnings of the average worker in a Florida county rises over 4% within the first quarter of being hit by a major Category 4 or 5 hurricane relative to counties not hit, and rises about 1¼% for workers in Florida counties hit by less major Category 1-3 hurricanes. Concomitantly, employment falls between 1½ and 5% depending on hurricane strength. On the other hand, the effects of hurricanes on neighboring counties have the opposite effects, moving earnings down between 3 and 4% in the quarter the hurricane struck. To better examine the specific shocks, we also observe sectoral employment shifts. Finally, we conduct a time-series analysis and find that over time, there is somewhat of a cobweb with earnings and employment rising and falling each quarter over a two-year time period.