Labor market impacts of destructive California wildfires

Small and medium wildfires have little measurable impact on the overall local employment changes. In the month of a large wildfire, overall employment drops slightly but recovers quickly afterward in the same quarter. These findings are similar to previous studies on the economic impacts of natural disasters, which also found a slight negative employment impact in the short term following hurricanes and tornados. However, these relatively minor impacts on the overall labor market hide much larger dynamics at the industry sector levels, an issue rarely studied in the literature.

As seen with the overall results, small and medium wildfires have relatively small impacts on labor markets across most industries. Henceforth, this article will focus mainly on the impacts of large wildfires on industries and will only mention medium and small wildfires when they are important to the discussion. See results in table 1 for more details.

During the 2003 through 2021 period, construction had the largest and most persistent employment growth rates following a large destructive wildfire. (See table 1.) As one would expect, if a large number of structures are destroyed in a community, an influx of construction workers is required to help rebuild the community. Following large wildfires, the number of construction workers steadily grew in the first 18 months to nearly 10 percent above what is expected normally without a fire. Medium and small fires also had a measurable impact on employment, with growths up to 5 percent and 3 percent, respectively, within the first 18 months.

Reconstruction and cleanup efforts, insurance payouts, as well as government funding may have contributed to a positive and sustained construction employment response. These results are consistent with other natural disaster studies, which find that construction employment increases in the 2 years following a destructive earthquake. (See chart 4.)

Professional and business services employment also had a positive impact from large wildfires, with employment growths of up to 5 percent in the 18 months following a large fire event. Architectural and engineering services, which is part of the professional and business services industry, is another industry in which employment may have been affected in rebuilding homes and communities. As for other individual industries within the county of a fire, the impact of wildfires on employment was relatively minor, even with large wildfires.

Robustness checks

The analysis just discussed restricted data in several ways that included limiting data to only counties that had an above-average rate of significant fires and limiting data to only summer months to construct a most comparable group. The analysis was rerun with the full datasets (without these restrictions) as robustness checks. The results with the full dataset were similar to those of the restricted dataset. (See table 2.)