Wildfires are becoming more common, yet few studies to date have explored the effects of fires on local economies. In their recent research, Resources for the Future scholars Margaret Walls and Matthew Wibbenmeyer examine how wildfires affect employment growth rates in nearby communities in the years after a fire.
Wildfires have been growing in frequency and severity in the United States over the last several years. Although most fires occur in forests or other wildlands, away from where large numbers of people live and work, recent large wildfires have spread into populated areas and have resulted in heavy damages. In 2018, the Camp Fire, the largest wildfire in US history, destroyed 18,804 structures and killed 85 people in Paradise, California. Of the top 10 costliest fires (measured by insured losses), 8 have occurred since 2017.
Wildfires, like other natural hazards, have uncertain impacts on local economies. For one thing, while wildfire damages are growing, most wildfires still are not classified as disasters by the federal government. According to data from the National Oceanic and Atmospheric Administration on billion-dollar disasters in the United States since 1980, wildfires account for only 6 percent of the number of these disasters and 5.5 percent of disaster costs. (Hurricanes, floods, and severe storms are the big problems; these account for 76 percent of disaster costs.)
Furthermore, even fires that officially are declared disasters can have varying economic impacts. Damage to property and local infrastructure may lead to temporary business disruptions due to power outages, road closures, and direct damages to buildings and other business infrastructure, which can affect business sales, employment, and wages. But construction for rebuilding generally provides a local economic boost. Effects on household income are ambiguous, too: insurance payouts, disaster aid, and other government assistance often offset negative shocks. Over the long run, many outcomes are possible, including “creative destruction” or “build back better” scenarios in which economic growth is higher than it would have been.
Pinpointing How Wildfires Affect Local Economies
While many studies investigate the economic impacts of hurricanes, very little research looks at these impacts for wildfires. We set out to fill this gap: in a recent study, we analyzed the impacts of wildfires on local employment growth using two different data sets and empirical approaches.
In our first approach, which is similar to methods that are used in much of the research on hurricanes, we used quarterly data on employment at the county level from the US Bureau of Labor Statistics. The problem with county-level data, however, is that wildfires may affect only a limited geographic area within a county—often the most rural areas.
This limitation informed our second approach, in which we used data on individual business establishments from the National Establishment Time Series Database. The database serves as a 30-year record of all establishments in the United States that includes information on location and employment for individual businesses across different industries. With the database, we analyzed the impacts of wildfires on jobs that were closer to where fires occurred. In both approaches, we limited our analysis to large and damaging fires, using the size of the fire in acres and a measure of the population that the fire impacted.
Wildfires and Job Growth
In our results, we find that the short-term effects of wildfires vary with the distance from the fire. At the county level, wildfires cause a small but statistically significant 0.4 percent boost in the average employment growth rate. In smaller geographic areas that are closer to where the fires occur (within 6 kilometers of the fire perimeter), however, the employment growth rate falls by 1.3 percentage points in the year of the fire.
In other words, fires have negative impacts on jobs in businesses that are located close to where fires occur but appear to have positive impacts overall at the county level. Our methods and data cannot disentangle the various reasons for these different impacts, but one reasonable guess is that the damage to buildings and infrastructure within and just outside the fire perimeter may lead to temporary business closures or an inability of workers to get to jobs. The county results could be due to the displacement of workers to other areas in the county or an influx of workers who are hired for recovery and rebuilding.
In both the county and subcounty analyses, employment growth rates return to baseline levels a year after the fire. We see no long-term impacts—positive or negative—of wildfires on overall job growth rates.
Wildfires can cause both short-term negative impacts to employment growth within and in the immediate vicinity of burned areas and small positive effects within the broader region around these wildfires.
Both the county and subcounty analyses show a boost in job growth in the construction industry. This finding is in line with studies of hurricanes and consistent with a narrative of rebuilding after a disaster; however, the magnitude and persistence of these effects differ. At the county level, the increase in construction-sector job growth is approximately 1.5 percentage points and lasts for about a year and a half after a fire. In areas close to a fire, we see an increase of approximately 5 percentage points that persists for four years. Thus, where impacts are greatest—close to where the fires burn—we see larger impacts on local labor markets.
In other industries, we see some similarities and some differences across the county and subcounty results. Job growth in the hospitality sector (hotels and lodging) drops for up to a year after the fire in both analyses but returns to baseline after that. Disasters often have impacts in this sector, which serves local demand rather than demand outside the region; our results support that pattern. In hospitality, too, the magnitude of the effect is larger in the areas closer to the fires. Business services and retail and wholesale trade, which account for large numbers of jobs, experience no short- or long-term impacts from wildfires either at the county level or in smaller areas close to where fires occur.
Effects of Wildfires Then and Now
Our analysis reveals that wildfires can cause both short-term negative impacts to employment growth within and in the immediate vicinity of burned areas and small positive effects within the broader region around these wildfires. These growth effects may not indicate the overall welfare effects of fires, which can include damage to homes, negative effects on the natural environment, and harmful smoke emissions. In other words, jobs are important, but they are not a measure of overall welfare.
A limitation of our subcounty analysis is that, to allow for lagged effects, our data only go through 2013. This limitation means that we are not capturing some of the large and damaging fires that struck California since 2017 (including the Camp Fire). Still, the effects that we find represent an important consequence of fires for the local economies in which they occur. Further analysis will be important, as recent large fires have exerted larger impacts on local economies.