Drought and regional labour markets: evidence from Australia

We apply the synthetic control method (SCM) to evaluate the impact of the 2017–2020 New South Wales drought, one of the most severe in Australia’s recorded history, on regional agricultural labour markets. Using 25 years of quarterly employment data, we construct region-specific counterfactuals for 14 non-metropolitan Statistical Area Level 4 (SA4) regions. Most regions exhibit limited long-term effects on agricultural employment. However, the Hunter Valley region experienced a sharp and persistent decline in agricultural employment, with levels up to 75% below those of its synthetic control and no sign of recovery years after the drought ended. This divergence reflects a place-specific adjustment path in which drought disruptions were compounded by subsequent climatic and market shocks, including bushfires, flooding and trade disruptions, resulting in persistent labour-market effects rather than a transitory response. Complementary evidence on the employment structure indicates widespread short-term shifts from full-time to part-time agricultural work, suggesting that drought impacts affect not only employment levels but also job quality and income stability. By providing a within-country, multi-region application of SCM to drought impacts on labour markets, the study contributes to understanding regional economic resilience and demonstrates the value of spatially disaggregated causal methods for identifying persistent vulnerability and informing targeted adaptation strategies.