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Oil Price Shocks and Labor Market Fluctuations

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  • Javier Ordóñez
  • Hector Sala
  • José I. Silva

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.

Suggested Citation

  • Javier Ordóñez & Hector Sala & José I. Silva, 2011. "Oil Price Shocks and Labor Market Fluctuations," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 89-118.
    • Handle: RePEc:aen:journl:32-3-a04
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    7. Gormus, N. Alper & Soytas, Ugur & Diltz, J. David, 2014. "Volatility transmission between energy-related asset classes," Global Finance Journal, Elsevier, vol. 25(3), pages 246-259.
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    10. Xinheng Liu & Shuxian Li & Chengbo Fu & Xu Gong & Chen Fan, 2024. "The oil price plummeted in 2014–2015: Is there an effect on Chinese firms' labour investment?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 943-960, January.
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