Climate Change, Income Inequality, and Migration in a Spatial Economy
(currently being revised)
Abstract
Negative local labor market shocks create strong incentives to migrate,
yet low-income households often remain in place. This paper studies how
income shapes migration responses to climate change and the resulting welfare
effects. Using Brazilian Census data, I show that high-income individuals
are systematically more mobile than low-income individuals from the same
origin. To interpret this pattern and quantify the impacts of climate change,
I develop a dynamic spatial general equilibrium model with monetary migration
costs and liquidity constraints, embedded in a two-sector trade framework in
which rising temperatures depress agricultural productivity. The quantitative
results imply sharply regressive welfare losses: in already hot regions,
low-income households experience permanent consumption declines of about
0.6–0.9% per period, with worst-case losses near 3.3%, while richer households
are largely insulated. Two mechanisms drive these disparities: climate shocks
reduce agricultural wages in hot areas, and monetary migration costs
disproportionately burden low-income individuals, limiting their ability to
relocate in response. A counterfactual policy that makes low-income individuals
as mobile as high-income individuals—modeled as a targeted subsidy—raises
low-income individuals’ welfare by 24%, offsets 4% of climate losses, and
increases aggregate output by relocating labor to more productive regions.
Adaptation to climate change depends not only on where productivity shocks
occur but also on who can afford to relocate. Consequently, adverse shocks
tend to fall disproportionately on those unable to afford relocation.
Skill Supply, Firm Size, and Economic Development
Abstract
Large firms employ a far smaller share of workers in low-income than in high-income countries. Using newly harmonized microdata for 57 countries, we show that large firms are more skill-intensive than small firms, especially where skills are scarce, and that the skill premium is higher there. In a model in which firms choose between a skill-intensive and a traditional technology, skill endowments account for 88% of the cross-country variation in large-firm employment, and technology choice adds a quarter to the output gain from a larger skill endowment. Small firms in low-income countries are thus largely an efficient response to skill scarcity.