Economic impact of labor productivity losses induced by heat stress: an agent-based macroeconomic approach

Abstract Against the backdrop of rising temperatures, this paper analyzes how prolonged heat affects labor productivity and the corresponding macroeconomic outcomes, using Austria as a case study. While previous research primarily focused on specific industries or used industry aggregates, this study also considers inter-industrial economic connections. We assess the macroeconomic effects of an increase in seasonal heat stress triggered by climate change with an emphasis on (1) industry-specific work intensity and (2) the vulnerability to heat-induced impairments resulting in an industry-specific loss of labor productivity. To account for indirect and non-linear economic relationships, we apply an agent-based model of the Austrian economy, which translates heat-induced productivity losses into economy-wide effects via shocks to industry-related input-output structures on the level of economic agents. The findings highlight how in the scenario with the highest temperature increase, the largest average loss in real GDP amounts to 0.7% in the third year compared to the baseline scenario. The largest aggregate effect is found for investments in dwellings. In line with existing literature, industries most affected directly are those that perform intense work in the sun, such as agriculture and construction. Our methodological approach, model, and the corresponding EU data sources can serve as a blueprint for further comparative research.