Federal Reserve Research: Extreme High Temperatures Will Kill the US Economy

Golden10 Data ·  May 29 12:37

The San Francisco Federal Reserve's research shows the long-term effects of high temperatures, and the construction industry is likely to determine the overall vulnerability of the US economy.

According to a study by the San Francisco Federal Reserve, extreme heat will limit the productivity of construction workers and reduce capital investment, thereby stifling the US economy.

The paper examined the impact on capital stock (that is, the value of cumulative investment), pointing out that the construction industry is likely to determine the overall vulnerability of US production to extreme heat because the industry contributes greatly to economic output, and outdoor workers account for a large proportion.

Economists Gregory Casey (Gregory Casey), Stephie Fried (Stephie Fried), and Matthew Gibson (Matthew Gibson) wrote in a paper published on the San Francisco Federal Reserve website on Tuesday: “Our findings suggest that without large-scale reductions in carbon emissions, future increases in extreme heat will reduce capital stocks by 5.4%, and annual consumption by 1.8% by 2200.”

The study predicted the future vulnerability of outdoor workers to thermal stress, measured by the number of days each year exceeding the safety threshold considered “heavy work.” According to the author's predictions, by the end of this century, this number will rise sharply, from 22 days in 2020 to around 80 days in 2100.

The authors divided economic output from 1950 to 2019 into five sectors to study how loss of labor productivity due to extreme heat affects the economy. Although services and manufacturing play the biggest role, most of the work is done indoors. Of the rest of the outdoor industries, including agriculture and mining, the construction industry accounts for the largest share of US output.

The authors built a model to study productivity in various sectors and its impact on macroeconomic results.

The paper said that since the construction industry is an important part of overall US investment, a decline in productivity will slow capital accumulation, which will have a long-term impact on the economy.

The researchers compared the size of capital stocks in the two situations. One scenario is that extreme heat will not increase after 2019; the other is that by 2100, the number of days of extreme heat will increase to 80 days.

Casey, Freed, and Gibson said, “We have found that future increases in extreme heat will reduce capital stocks by about 1.4% in 2100 and 5.4% in 2200. “A reduction in capital stocks reduces the economy's productive capacity, which in turn reduces consumption. As a result, we found that extreme heat would reduce annual consumption by 0.5% in 2100 and 1.8% in 2200.”

The author suggests a few caveats. Companies and employees can find ways to adapt, such as moving part of production to cooler regions or working during cooler hours of the day.

The translation is provided by third-party software.

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