Oil Price Shocks and Labor Market Fluctuations

We examine the impact of real oil price shocks on labor market flows in the U.S. We first use smooth transition regression (STAR) models to investigate to what extent oil prices can be considered as a driving force of labor market fluctuations. Then we develop and calibrate a modified version of Pis...

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Bibliographic Details
Published in:The Energy journal (Cambridge, Mass.) Mass.), 2011-07, Vol.32 (3), p.89-118
Main Authors: Ordóñez, Javier, Sala, Hector, Silva, José I.
Format: Article
Language:English
Subjects:
Applied sciences
Crude oil prices
Economic data
Economic fluctuations
Economic models
Energy
Energy economics
Exact sciences and technology
Forecasts and trends
Fossil fuels and derived products
General, economic and professional studies
Impact analysis
Labor market
Labor markets
Macroeconomic modeling
Methodology. Modelling
Modeling
Nonlinearity
Oil
Oil price shocks
Oil prices
Petroleum
Petroleum industry
Price fluctuations
Prices and rates
Statistics
Studies
Unemployment
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Summary:We examine the impact of real oil price shocks on labor market flows in the U.S. We first use smooth transition regression (STAR) models to investigate to what extent oil prices can be considered as a driving force of labor market fluctuations. Then we develop and calibrate a modified version of Pissarides' (2000) model with energy costs, which we simulate in response to shocks mimicking the behavior of the actual oil price shocks. We find that (i) these shocks are an important driving force of job market flows; (ii) the job finding probability is the main transmission mechanism of such shocks; and (iii) they bring a new amplification mechanism for the volatility of the labor market, and should thus be seen as complementary of labor productivity shocks. Overall we conclude that shocks in oil prices cannot be neglected in explaining cyclical labor adjustments in the U.S.
ISSN:0195-6574
1944-9089
DOI:10.5547/ISSN0195-6574-EJ-Vol32-No3-4