Wildfire Shocks, Labor Markets, and Public Policies: Economy-Wide Evidence from a Mediterranean Country

Using the 2017 Portuguese wildfires as empirical evidence from a Mediterranean climate country, this paper assesses the economy-wide and employment effects of wildfire-related capital and labor shocks through a static computable general equilibrium (CGE) model with an extended labor-market framework. The analysis focuses on how wildfire shocks interact with labor markets, affect aggregate welfare, and condition the effectiveness of public policy responses. The results show that labor-market disruptions amplify economic losses beyond direct physical damage. Among the policy scenarios examined, comprehensive responses combining infrastructure investment, sector-specific support, and household transfers provide the strongest mitigation of aggregate losses. Recovery and mitigation policies generate the strongest positive effects on GDP, while the fire suppression-cost scenario alone has limited effectiveness. Employment impacts are concentrated in the primary and tourism-related sectors, particularly forestry, agriculture, transport, and accommodation. The findings highlight the importance of maintaining labor-force participation during climate disasters and of combining capital restoration with household support. By quantifying the economy-wide trade-offs between wildfire damage, labor-market disruption, and public-response channels, the paper provides evidence relevant to wildfire-prone Mediterranean economies and to broader environmental-development debates.