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Disentangling Labor Supply and Demand Shifts Using Spatial Wage Dispersion: The Case of Oil Price Shocks

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  • Matthias Kehrig
  • Nicolas Vincent
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    Abstract

    We separate changes in labor supply and demand through changes in higher-order moments of the wage distribution. We illustrate this idea in a study of the effects of oil price shocks, which generate a predictable labor demand adjustment across regions. Empirically, oil price shocks decrease average wages, particularly skilled wages, and increase wage dispersion, particularly unskilled wage dispersion. In a model with spatial energy intensity differences and nontradables, labor demand shifts, while explaining the response of average wages to oil price shocks, have counterfactual implications for the response of wage dispersion. Only shifts in labor supply can explain this latter fact.

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    File URL: ftp://ftp2.census.gov/ces/wp/2013/CES-WP-13-57.pdf
    File Function: First version, 2013
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    Bibliographic Info

    Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 13-57.

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    Length: 41 pages
    Date of creation: Nov 2013
    Date of revision:
    Handle: RePEc:cen:wpaper:13-57

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    Keywords: Wage dispersion; Labor reallocation; Skill heterogeneity; Oil prices;

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    1. Steven J. Davis & John Haltiwanger, 1999. "Sectoral Job Creation and Destruction Responses to Oil Price Changes," NBER Working Papers 7095, National Bureau of Economic Research, Inc.
    2. Veronica Guerrieri & Daniel Hartley & Erik Hurst, 2010. "Endogenous gentrification and housing price dynamics," Working Paper 1008, Federal Reserve Bank of Cleveland.
    3. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 125(3), pages 1253-1296, August.
    4. Kilian, Lutz & Park, Cheolbeom, 2007. "The Impact of Oil Price Shocks on the U.S. Stock Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6166, C.E.P.R. Discussion Papers.
    5. Gueorgui Kambourov & Iourii Manovskii, 2009. "Occupational Mobility and Wage Inequality," Review of Economic Studies, Oxford University Press, vol. 76(2), pages 731-759.
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    7. Polgreen, Linnea & Silos, Pedro, 2009. "Crude substitution: The cyclical dynamics of oil prices and the skill premium," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(3), pages 409-418, April.
    8. Hoover, Kevin D. & Perez, Stephen J., 1994. "Post hoc ergo propter once more an evaluation of 'does monetary policy matter?' in the spirit of James Tobin," Journal of Monetary Economics, Elsevier, Elsevier, vol. 34(1), pages 47-74, August.
    9. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2006. "Why Has House Price Dispersion Gone Up?," NBER Working Papers 12538, National Bureau of Economic Research, Inc.
    10. Christiano, Lawrence J. & Trabandt, Mathias & Walentin, Karl, 2007. "Introducing Financial Frictions and Unemployment into a Small Open Economy Model," Working Paper Series 214, Sveriges Riksbank (Central Bank of Sweden), revised 01 Jun 2011.
    11. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(6), pages 1257-78, December.
    12. Joseph S. Vavra, 2013. "Inflation Dynamics and Time-Varying Volatility: New Evidence and an Ss Interpretation," NBER Working Papers 19148, National Bureau of Economic Research, Inc.
    13. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(4), pages 777-93, August.
    14. Steven J. Davis & John Haltiwanger, 1996. "On the Driving Forces Behind Cyclical Movement, in Employment and Job Reallocation," NBER Working Papers 5775, National Bureau of Economic Research, Inc.
    15. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 228-48, April.
    16. repec:spo:wpecon:info:hdl:2441/10031 is not listed on IDEAS
    17. Lutz Kilian & Robert J. Vigfusson, 2011. "Are the responses of the U.S. economy asymmetric in energy price increases and decreases?," Quantitative Economics, Econometric Society, Econometric Society, vol. 2(3), pages 419-453, November.
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