Natural Disasters and Income Distribution: Evidence from Australia

Abstract

Climate-related disasters in Australia happen often and impact large numbers of the population. With climate change, the frequency and intensity of these events will likely increase. Despite the broad recognition of the economic costs associated with these events, their socio-economic impact on different population groups remains less understood. This thesis fills this gap by exploring the impact of natural disasters on income distribution in Australia. Specifically, it extends the conventional evaluation of average effects by detecting heterogeneous impacts across distinct income groups and sectors of employment.

This study primarily relies on the data on income and direct exposure to disasters from the Household, Income, and Labour Dynamics in Australia (HILDA) Survey from 2009 to 2019. To ensure that the self-reported information on disasters from this source is a reliable proxy, the data are validated against other better-known sources of disaster data, such as EM-DAT.

In the quantitative analysis, the effect of disasters is assessed using an event study design. This design allows us to examine the long-term impacts of disasters. Compared to those in the control group, individuals who experienced a disaster show a drop in income following the event, with notable heterogeneities in this effect by income groups and occupations. Low- and middle-income earners suffer from income losses of 32% and 11%, respectively. Primary and non-tradable industries are particularly vulnerable to disaster shocks.

The key findings largely align with, or at least do not contradict, the existing literature. To that end, this study contributes to the literature on the relationship between natural disasters and income, by exploring the long-term effects across different socio-economic groups. These findings offer insights for policymakers to recognize vulnerable communities after natural disasters and improve effective mitigation and recovery plans.