How Hurricanes Affect Wages and Employment in Local Labor Markets

Abstract

Currently, a growing literature is emerging on estimating the impact of exogenous shocks using the difference-in-difference (DD) tech? nique. Essentially, this technique compares the impact of an unexpected event in a particu? lar locale (called the treatment/experimental group) to a location or set of locations (called a control group) similar to the experimental group in all respects except for the shock itself. One challenge many DD studies face is how to choose the control group, and there is now a growing literature on this (Joshua A. Angrist and Alan B. Krueger 1999; Jeffrey D. Kubik and John R. Moran 2003; and Alberto Abadie, Alexis Diamond, and Jens Hainmueller 2007). Another challenge is whether one can general? ize one's results based on a single experimental group, as is typical for most DD analysis. This paper adopts a generalized-difference-in-dif ference (GDD) technique outlined in Ariel R. Belasen and Solomon W. Polachek (forthcom? ing) to examine the impact of hurricanes on the labor market. This technique incorporates many experimental as well as many control groups, and as such this approach addresses a number of shortcomings in current DD analyses. We find that earnings of the average worker in a Florida county rise over 4 percent within the first quarter of being hit by a major Category Four or Five hur? ricane relative to counties not hit, and rise about Wa percent for workers in Florida counties hit by less major Category One to Three hurricanes. Concomitantly, employment falls between Wi and 5 percent depending on hurricane strength. On the other hand, the effects of hurricanes on neighboring counties have the opposite effects, moving earnings down between 3 and 4 percent in the quarter the hurricane struck. To better examine the specific shocks, we also observe sectoral employment shifts. Finally, we conduct a time-series analysis and find that, over time, there is somewhat of a cobweb, with earnings and employment rising and falling each quarter over a two-year time period.