Impact of Climate Change on Labor Market Dynamics: Evidence From Kazakhstan

ABSTRACT This paper examines how drought shocks affect formal employment in Kazakhstan. We combine remote sensing data on drought severity—the Palmer Drought Severity Index (PDSI)—with quarterly firm‐level administrative employment records from 2012 to 2022. We leverage a recently developed nonparametric difference‐in‐differences estimator to address treatment heterogeneity in timing and recurrence, a key challenge in studying climate shocks. Despite theoretical predictions of labor reallocation following agricultural productivity shocks, we find no statistically significant average effect of severe drought (PDSI ≤ −3) on formal agricultural employment. Small, short‐lived adjustments in job destruction and reallocation are observed, but these effects are not persistent. We attribute this muted response to institutional factors that decouple climatic shocks from labor demand. Importantly, heterogeneity analysis reveals that employment responses depend more on drought duration than its intensity: Sustained multiperiod droughts lead to stronger employment and reallocation effects than shorter episodes.