Precipitation Shocks, Rural Labor Markets and Migration: Evidence from Iran

Abstract

The welfare of both agrarian and non-agrarian workers in rural areas is highly affected by agricultural output volatility caused in part by weather shocks. This paper examines the impact of precipitation shocks on labor supply and out-migration in rural Iran. We use individual-level panel data combined with low-resolution gridded precipitation data at a rural-agglomeration level to study the intensive and extensive margins of employment. Our results indicate different types of responses to positive and negative shocks. Using a fixed effects model, we find that individuals affected by negative shocks reduce their farm and off-farm hours of work, while those affected by positive shocks increase only off-farm hours. We observe heterogeneity in responses based on gender and the roles of individuals in the household. At the extensive margin, we find that negative shocks reduce the labor market participation of men. Our estimates for the probability of migration indicate that positive shocks reduce the probability of migration for low-educated young men. We show that labor-migration of young men is also affected by positive shocks, but the impact could be explained by the local unemployment rate, implying the labor market is a channel through which precipitation shocks affect migratory decisions.