Oil price shocks and labor market fluctuations

Javier Ordóñez; Hector Sala; José I. Silva

doi:10.5547/ISSN0195-6574-EJ-Vol32-No3-4

Oil price shocks and labor market fluctuations

Javier Ordóñez, Hector Sala, José I. Silva

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Abstract

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. Copyright © 2011 by the IAEE. All rights reserved.

Original language	English
Pages (from-to)	89-118
Journal	Energy Journal
Volume	32
Issue number	3
DOIs	https://doi.org/10.5547/ISSN0195-6574-EJ-Vol32-No3-4
Publication status	Published - 13 Oct 2011

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title = "Oil price shocks and labor market fluctuations",

abstract = "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. Copyright {\textcopyright} 2011 by the IAEE. All rights reserved.",

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T1 - Oil price shocks and labor market fluctuations

AU - Ordóñez, Javier

AU - Sala, Hector

AU - Silva, José I.

PY - 2011/10/13

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N2 - 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. Copyright © 2011 by the IAEE. All rights reserved.

AB - 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. Copyright © 2011 by the IAEE. All rights reserved.

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VL - 32

SP - 89

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JO - Energy Journal

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Oil price shocks and labor market fluctuations

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