Flash Floods, Business Adjustment, and Ripple Effects on Displaced Workers

ABSTRACT This paper examines how an extreme weather event affects the establishments and workers in the affected region, using the devastating 2008 Santa Catarina Flash Flood in Brazil as a natural experiment. We combine synthetic‐aperture radar images, which show the exact location of flood spots, with geocoded matched employer‐employee data to estimate the impact of the disaster using a difference‐in‐differences approach. Treatment and control areas are defined using an inner‐and‐outer‐ring approach based on distance from the mapped flood spots. We find that affected establishments are more likely to close, while detecting no statistically significant change in spatial relocation. We then examine the ripple effects of these disaster‐induced closures on displaced workers. We find that displaced workers are less likely to remain formally employed after the shock, with the adverse employment effects concentrated among low‐skilled workers. Both effects persist over the analyzed 5‐ to 9‐year post‐disaster period.