Department of Economics

Natural events such as drought can sometimes create ripple effects within closely related industries in local economies, reducing income and welfare. From 2012 to 2016 California experienced its most hydrologically severe occurrence of drought in the last 1,200 years. I investigate the impact of this drought by comparing heavily impacted agricultural counties to agriculturally similar counties in the Central Valley of California. Using a difference in difference strategy to analyze changes during the occurrence of the drought, I find substantial decreases in agricultural employment and wages in the affected counties. Despite this, I find no relative contractions overall in closely related tradable or non-tradable industries. When this impact is dissected, I observe substantial reductions in Hispanic worker employment and income. I also find evidence of a proportionate increase in construction employment, raising the possibility that these occupations were substituted to reduce impact during the drought.