Essay 1: Climate-Induced Labor Risk: Labor Market Consequences, Firm Labor Adaptation Strategies, and Firm Performance

Abstract: This paper studies how physical climate risk affects corporations through the labor channel. By quantifying occupational climate exposure, I document that climate-exposed jobs have shorter working hours, lower productivity, and higher employment (especially of part-time workers) as workforce supplements. Firms with more climate-exposed workers adapt to unfavorable climate trends by retaining more employees, increasing insurance, and expanding offshore inputs. However, these firms have more workplace injuries and worse performance during climate surprises, indicating limitations of adaptation. I also explore various incentives and constraints for firms’ labor adaptation strategies and make further causal inferences by studying the implementation of the California Heat Standard.

Essay 2: Climate-Induced Labor Risk and Firm Investments in Automation

Abstract: This paper studies whether and how firms adapt to climate-induced labor risks through automation investments. Using textual analysis, I construct a measure of automation investment intensity at the firm-year level based on material news and events. I find that firms with more climate-exposed employees invest more in automation when they face adverse long-term climate conditions and are not financially constrained. The automation news of these firms is associated with higher stock returns during the announcement period. Moreover, after adopting automation, climate-exposed firms retain fewer employees, incur smaller employee insurance expenditures and decrease offshore inputs. These firms also exhibit better operating performance under short-term temperature shocks. Overall, these results imply that automation is a selective adaptation strategy that effectively helps mitigate climate-induced labor risk.