Arising from the Ruins: The impact of natural disasters on reconstruction labor wages

Abstract

The need for reconstruction in the aftermath of natural disasters can lead to increased reconstruction labor wages, resulting in considerably inflated insured and uninsured losses. Based on a difference-in-differences approach using 9,009 catastrophe regions in the United States, we segregate catastrophe induced wage effects from the business cycle development and find a wage surge of up to 50%. In addition to catastrophe-specific factors, wage surge is substantially influenced by local labor market characteristics such as growth stage of the economy, workload per employee, and local wage differentials. We illustrate implications for (re)insurance companies, catastrophe-linked securities and their respective investors, building companies, and governments.