Hotter years are associated with lower economic output in developing countries. We show that the effect of temperature on labor is an important part of the explanation. Using microdata from selected firms in India, we estimate reduced worker productivity and increased absenteeism on hot days. Climate control significantly mitigates productivity losses. In a national panel of Indian factories, annual plant output falls by about 2% per degree Celsius. This response appears to be driven by a reduction in the output elasticity of labor. Our estimates are large enough to explain previously observed output losses in cross-country panels

Hotter years are associated with lower economic output across countries. This paper uses high-frequency micro data from selected firms in India and finds individual worker productivity on hot days declines by 2 to 4 percent per degree Celsius. Sustained heat also increases worker absenteeism. Using a national panel of manufacturing plants, we find similar temperature effects on output and show that these are driven by reductions in the productivity of labor. Our estimated effects on individuals are sufficient to explain output declines in plants and these effect sizes are in turn consistent with those in studies that rely on country GDP panels.

Read the paper – The Impact of Temperature on Productivity and Labor Supply: Evidence from Indian Manufacturing