Climate shocks have well-documented impacts on the short-term welfare of rural households in developing countries. We investigate the impact of droughts on Brazilian labour markets. We find long-term rural wage losses beyond the immediate impact of the drought, with affected workers taking five years to catch up with their peers. Findings are robust to model specification. The severity of the losses varies with the dependence on agricultural income, supporting the notion of diversifying portfolio strategies in rural areas to reduce climate-related income risk.
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