Manufacturing and Trade: Labour Productivity Losses

Abstract

The sector “Manufacturing and Trade” exhibits relatively high climate sensitivity as it depends on climate sensitive raw materials and intermediary inputs (such as agricultural products, timber and energy). In addition, changes in climatic stimuli (such as in temperature and relative humidity) may also influence production processes and/or the productivity of workers. In the present chapter all these effects are discussed qualitatively. The productivity losses of workers, however, are also estimated on the basis of a quantitative model using a relationship between the Wet Bulb Globe Temperature (WBGT) index and the productivity of workers. The Human Capital Approach (HCA) and a GDP per employee approach are used for monetising the direct productivity losses. Changing working conditions can have serious effects on the productivity of workers and thus on companies. Depending on the climatic development and the degree of adaptation the degree of damage caused can vary significantly. The direct climate impacts observed in the sector “Manufacturing and Trade” are magnified fourfold by associated macroeconomic feedback effects. For the mid-range climate scenario, there is a decline in economic welfare of 6 million euros per year for the period 2016–2045 (and 54 million euros for 2036–2065). For the high-range climate scenario respective welfare losses amount to 58 million euros (296 million euros). As declining demand also triggers price declines, losses in GDP are thus stronger, about 1.5 times the welfare losses. Note, however, that we only estimate the effects of productivity changes within the sector “Manufacturing and Trade”. Similar productivity changes could affect the remaining sectors of the whole economy as well, and thus could increase the economy-wide effects of climate-induced productivity changes above those quantified in the present chapter.