Climate risk shocks and corporate outsourcing

Climate risk, driven by global climate change and the rising frequency of extreme weather events, has emerged as a significant challenge for sustainable human development and economic stability. It is increasingly becoming a critical external factor that enterprises need to address in their future operations. The challenge of achieving rational labor allocation under climate risk has become critical for enterprises in the zero-carbon transition. Utilizing a unique manually-collected dataset encompassing 4181 Chinese listed firms (2012-2022), this study empirically examines the impact of climate risk shocks on corporate labor outsourcing behavior. The findings demonstrate that climate risk shocks significantly increase labor outsourcing expenditures, with results remaining robust across instrumental variable and alternative explanation exclusions. The effects are more pronounced in firms with limited cost-passing capacity, high financing constraints, and low-end business operations. Mechanism analysis reveals that climate risk shocks primarily exacerbate labor outsourcing expenditures through increased economic uncertainty and investment expenditure. Further analysis shows that intensified climate risks increase firms’ tax avoidance incentives and partially drive digital transformation initiatives. This research enhances understanding of enterprise labor decision-making under climate risk shocks, providing a solid theoretical basis for emerging market economies to balance labor resource allocation with adaptive strategies to address climate challenges. The findings also provide valuable insights for policymakers, highlighting the importance of developing inclusive labor market frameworks during the shift toward green industrial structures and stable employment policies.