Climate change alters US income inequality, varied by state
A Bank of Canada working paper explores the effects of climate change on income inequality in the United States. It finds that temperature distribution shifts asymmetrically, leading to varied positive and negative impacts on within-state inequality across the US.
Temperature shifts reshape US climate
The study, using a climate-inequality vector autoregression (VAR) model and daily temperature data for the contiguous US from 1920–2019, documents that climate change in the US involves more than just an increase in mean temperatures.
The entire temperature distribution has shifted asymmetrically, with temperatures in lower percentiles increasing at a faster rate than those in higher percentiles for most US states.
This suggests that US-wide extreme cold temperatures are warming faster than hot ones.
The research estimates the effects on income inequality by identifying shocks to temperature distribution characteristics, such as mean and percentiles.
It concludes that the impacts on within-state inequality vary widely across US states, showing both negative and positive effects.
There is no strong link between a state's climate or per capita income and these within-state effects once changes across various temperature percentiles are considered.
Unpacking inequality's climate burden
This paper contributes to the climate-economy literature by moving beyond analyses focused solely on economic growth or cross-country inequality.
Previous research often highlights that poorer, hotter countries are more vulnerable to climate change, exacerbating global inequality.
However, the translation of these findings to within-country inequality, particularly in the US, remains unclear.
The authors address this gap by characterizing climate change in the US through the lens of the full weather distribution and assessing the effects of changes in these characteristics on income inequality within US states.
This holistic approach, considering the asymmetric warming across different temperature percentiles, offers a more nuanced understanding of climate change's distributional impacts.
Climate's hidden inequality
The paper provides crucial granularity by moving beyond mean temperatures and cross-country analyses, revealing complex, state-specific impacts often overlooked.
While its findings highlight the need for localized adaptation strategies, the lack of a clear link to state-level climate or income suggests that policy responses will require deeper, more granular economic modeling.
This research underscores that climate change is not a uniform economic shock, but a highly differentiated challenge for social cohesion.