Research from Goizueta’s William Schmidt uncovers the disproportionate impact of natural disasters on low-income families’ access to essentials.
Global warming is accelerating severe weather with cataclysmic outcomes for communities all over the world. In 2023, the hottest year on record, no fewer than 23 weather-related disasters struck the United States. These natural disasters claimed hundreds of lives and caused $57 billion in damage. Recently, the federal government has come under scrutiny for uneven aid response to communities affected by hurricanes, fires, and flooding in America.
But might there be other factors at play that see disadvantaged groups more vulnerable to the impact of severe weather events? Weighing into this is award-winning research by Goizueta Business School’s William Schmidt, associate professor of Information Systems and Operations Management. He and Xabier Barriola from INSEAD Business School look at the effect of three major hurricanes in the U.S. in the last 20 years. They find evidence of higher paid prices for basic groceries in the aftermath of each storm that disproportionately impact lower-income communities in affected states. In fact, says Schmidt, when severe weather hits communities, these families end up paying anywhere between one and five percent more relative to high income households for essential food and goods. This puts a major strain on already-strained resources in times of massive disruption.
We see a spike in the prices paid for household groceries of up to five percent hitting low-income groups immediately after a major storm hits.
William Schmidt
“Then you have to factor in the reality that poorer households spend around eight times more of their disposable income on basic groceries than high-income households,” says Schmidt. “It becomes clear that the aftermath of severe weather is harder for them to bear. And in our research, this is an effect that lasts for months, not weeks or days.”
Exposing Hidden Costs on Those Hit Hardest
To get to these findings, Schmidt and Barriola worked from a hunch. They figured that in low-income areas, a lack of infrastructure, lower-quality construction, and fewer grocery store outlets could translate into supply shortages in emergencies. Ensuing stockouts might then lead to knock-on price inflation for customers. These are low-income families for whom inflation has serious and significant consequences, Schmidt says.
We know that inflation hurts poorer communities. High-income families have the option of switching between high and low-priced goods according to needs or preference. But families with lower incomes are already purchasing low-priced groceries.
William Schmidt
“When there are disaster-induced stockouts to their preferred products, those families are forced to substitute to higher priced groceries,” Schmidt continues.
Then there’s retailer behavior. Following large environmental disasters, store managers may be unable to keep necessities in stock. Under those circumstances, it is difficult to justify running promotions or implementing planned price decreases.
To test these ideas, Schmidt and his colleagues looked at data from the weeks and months following Hurricanes Katarina (2005), Ike (2008), and Sandy (2012). They decided to pinpoint those locations immediately impacted at the county level. To do so, they used major disaster declarations issued by the federal government at the time. Then they integrated this with detailed grocery store sales data provided by Information Resources Inc (IRI) with zip code-level household income and demographic data from the U.S. Census Bureau. With each hurricane, the researchers looked at IRI data covering 30 different product categories and around 200 million transactions over a 12-week period.
Schmidt and his colleagues then ran a set of analyses comparing prices paid by communities before and after each hurricane. They also contrasted price increases paid by low-income and high-income households as well as communities outside of the areas affected by the storms.
Crunching the Numbers
“Doing this triple-difference regression analysis, we find that lower-income communities pay an average 2.9 percent more for their groceries. That’s in the eight weeks following each of these disasters,” says Schmidt.
The effect varies. But it is roughly commensurate with the overall economic damage wrought by each hurricane, with Katrina being the worst. Here low-income families were seeing a 5.1 percent increase in the cost of food and basic goods, relative to richer households.
William Schmidt
The study points to a variety of mechanisms driving these effects. As Schmidt and his co-authors hypothesize, there is evidence that the same disruptions lead to fewer price promotions. They also see more frequent stockouts of low-priced goods. At the same time, there’s a shift in household purchasing from low to higher-priced products. These effects are long-lasting, says Schmidt.
According to the study, post-hurricane inflation in the prices paid by consumers continues to affect poorer families for eight or more weeks. This amounts to months of economic hardship for those least resilient to its effects. Schmidt calls this “permanent inflation.”
Pursuing Equity in Crisis
Operations managers and policymakers should factor these findings into emergency relief efforts, say Schmidt and his colleague. The goal should be to service communities more equitably. So, there should be more thought to the provision of essential food and household goods. Also, there should be a particular focus on those most vulnerable to natural disasters and their effects.
Current disaster nutrition relief programs are typically short. Authorities might do better by vulnerable communities by also extending things like cash and voucher programs, says Schmidt. And they should prioritize the ordering, shipment, and warehousing of essential goods.
“Our research shows that hurricanes cost certain groups of Americans more than others in the longer run. The permanent inflation on food stuff and household necessities that we find constitutes an additional burden on part of our national fabric. These are people who are least positioned to afford it.”
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