Does Violence in Non-War Zones Impact Labor Market Outcomes

Abstract

This paper analyzes a context where sustained violence happens in non-war zones. Specifically, this paper considers terrorist attacks in Pakistan and focuses on districts which were never an active war zone, but still suffered from intermittent terrorist attacks of varying intensity. We provide causal evidence on the effects of terrorist attacks on labor market outcomes. We find that the effect of terrorist attacks on incomes depends on the intensity of the attacks; it is also non-linear in nature as it gradually, but very slowly, shrinks to zero. After accounting for the intensity of the attacks, incomes reduce by about 15 percentage points on average due to terrorist attacks. The effects are more severe for highly skilled members of the labor force as well as for relatively inexperienced members. The two possible channels driving this impact are the changes in sectoral employment compositions and a reduction in the number of days worked. These findings add to the literature on conflict and violence by concluding that violence in non-war zones has important implications for labor market outcomes.