Cities in the US and mainland Europe experienced record-high temperatures as millions struggled to keep cool in the midst of a severe heat wave. In the UK, the thermometer topped 104 Fahrenheit (40 °C) on July 19, 2022, the highest ever recorded.
While all this scorching heat is certainly punishing on an individual level, it also has a significant impact on the broader economy.
As an economist studying the effects of weather and climate change, I have examined a large body of work that links heat to economic consequences. Here are four ways extreme heat hurts the economy.
1. Has an impact on growth
Research has found that extreme heat can directly harm economic growth.
For example, a 2018 study found that the economies of US states grow at a slower rate during relatively hot summers. The data shows that annual economic growth falls by 0.15 to 0.25 percentage points for every 1 degree Fahrenheit (0.56 C), a state’s average summer temperature is above normal.
Workers in industries exposed to weather such as construction work fewer hours when it is hot. But high summer temperatures also curtail growth in many industries that involve indoor work, including retail, services and finance. Workers are less productive when it is hot outside.
2. Decline in crop yield
Agriculture is clearly exposed to the weather: after all, crops grow outside.
While temperatures from about 85 F to 90 F (29-32 C) can benefit crop growth, yields drop sharply as the thermostat rises further. Some crops that may be vulnerable to extreme heat include corn, soybeans and cotton. These cuts in yields could be costly for American agriculture.
For example, a recent study I conducted found that an additional 2 degrees Celsius (3.6 F) of global warming would wipe out profits from the average acre of agricultural land in the eastern US.
A prime example of this was the collapse of the Russian wheat crop in response to the country’s 2010 heat wave, which raised wheat prices around the world.
3. Increases Energy Use
Of course, when it’s hotter, energy use goes up as people and businesses run their air conditioners and other cooling equipment outright.
A 2011 study found that just one extra day with temperatures above 90 F (32 C) increases household energy use by 0.4%. More recent research suggests that energy use increases most in places that are hotter, perhaps because more homes have air conditioning.
This increase in electricity use on hot days stresses the electricity grid exactly when people depend on them the most, as seen during past heat waves in California and Texas. Blackouts can be costly for the economy, as inventories of food and other goods may run out and many businesses have to either run generators or shut down. For example, the 2019 California blackouts have an estimated cost of US$10 billion.
4. Education and Earnings Affected
The long-term effects of increasingly hot weather include how it affects children’s ability to learn – and thus their future earnings.
Research has shown that warm weather during the school year lowers test scores. As the temperature rises above 70 F (21 C), the math scores drop more and more. Reading scores are more resistant to high temperatures, which this research claims is related to how different areas of the brain respond to heat.
One study suggested that schools that lack air conditioning learn 1% less for every 1 degree Fahrenheit (0.56 C) increase in the average temperature of the school year. It also found that minority students are particularly affected by hot school years, as their schools are more likely to lack air conditioning.
Learning deficits result in low lifetime earnings and hurt future economic growth.
The effect of extreme heat on growth, in fact, begins even before we are born. Research has found that adults who are exposed to extreme heat as a fetus earn less in their lifetime. Each additional day with an average temperature above 90 F (32 C) reduces income by 0.1% after 30 years.
Air Conditioning Can Help – Up to a Point
Air conditioning can compensate for some of these effects.
For example, studies have found that working air conditioners mean fewer people die, students’ studies are not compromised and the extreme heat outside during pregnancy does not harm the fetus.
However, not everyone has air conditioners, especially in states such as Oregon and countries such as the UK that have more temperate climates but have experienced unusually extreme temperatures recently. And not many people can own or operate them. Data from a 2017 survey found that nearly half of homes in the US Pacific Northwest lacked air conditioning. And about 42% of American classrooms lack air conditioners.
While heat waves have been shown to prompt more homes to install air conditioning, it is hardly a panacea. By 2100, increased use of air conditioning could lead to an 83% increase in residential energy consumption globally. If that energy comes from fossil fuels, it could fuel the heat waves that are creating high demand in the first place.
And in the US South, where air conditioning is ubiquitous, warmer-than-usual summers still have the biggest impact on states’ economic growth.
In other words, as temperatures rise, economies will continue to suffer.
This is an updated version of an article originally published on August 2, 2021.