The Effect of Disasters on Construction Wages: The Role Played by Spatial Proximity

Natural hazards significantly threaten the built environment and infrastructure, resulting in a sudden and significant increase in reconstruction demand. Such an unforeseen post-disaster demand surge for reconstruction can inflate costs up to 50%, impeding prompt and efficient reconstruction efforts. The current study aimed to quantify the effect of disasters on construction wages in three Gulf Coast states (Louisiana, Texas, and Florida). To accomplish this, spatial Durbin models were utilized with a difference-in-differences specification to allow for feedback and spillover effects across counties. The results show that the impact of a disaster on construction wages works with a lag. Natural disasters caused a decrease in construction wages in the impacted counties during the disaster quarter, compared to counties that were not affected. However, construction wages increased one quarter later in the disaster-affected counties compared to the non-affected counties. The direct, indirect, and total effects of disasters on the counties' wages indicate significant feedback and spillover effects across counties when a county experiences a disaster. The findings of this study carry significant policy implications for the city’s policymakers and decision-makers.