This paper analyzes whether rural households use labor allocation to mitigate the effect of drought shocks in the Northeaster Brazilian context. We first document that water scarcity leads to lower income derived from farm work as main, and higher income from secondary jobs. We then examine the extent to which extreme droughts affect time labor allocation. Our results indicate that an additional drought shock per year is associated with greater likelihood of have more than one job, lower share of farm activities in the total hours worked, and higher share of secondary job. The effects are higher for poorer municipalities. These findings are consistent with a mitigation response to reduced agricultural profitability due to water scarcity.

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