Climate Change, Income Inequality, and Migration in a Spatial Economy
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
The organization of production varies widely across countries, with firms being
substantially smaller in low-income countries. At the same time, educational
attainment is lower in low-income countries. How are these two patterns related?
In this paper, we examine the relationship between skill endowment and firm size
across different stages of economic development. Using harmonized labor force data
from 54 countries, we measure the skill intensity of employment by firm size and
document four key facts. First, we show that the share of employment in large firms
is about twice as high in high-income countries as in low-income countries. Second,
across countries, large firms employ more skilled workers than small firms. Third,
small firms in high-income countries are nearly as skill-intensive as large firms,
but small firms in low-income countries employ far fewer skilled workers than their
larger counterparts. Fourth, the skill gap between small and large firms is narrow
when the skill premium is low, but it widens substantially when the skill premium
is high. These findings suggest that small firms can easily substitute high-skill
for low-skill workers when skilled workers are scarce and expensive, whereas large
firms are less flexible. As a result, lower availability of high-skilled workers
restricts the prevalence of large firms in low-income economies. We then use a
span-of-control model with worker skill heterogeneity and two technologies
(large- and small-scale) to analyze the impact of skill endowments on firm size
distribution and economic development. Calibrated to U.S. data and varying only
skill endowments to match those of low-, middle-, and high-income countries, the
model replicates observed employment patterns by firm size and the skill intensity
of firms across different stages of development. We interpret this as evidence that
differences in skill endowments are a central driver of firm size distribution. Our
findings imply that skill accumulation promotes development directly, by increasing
productivity, and indirectly, by enabling the expansion of larger, more productive
firms.