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Oil Price Shocks and Labor Market Fluctuations

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Author Info

  • Ordóñez, Javier

    ()
    (Universitat Jaume I de Castelló)

  • Sala, Hector

    ()
    (Universitat Autònoma de Barcelona)

  • Silva, José I.

    ()
    (University of Kent)

Abstract

We examine the impact of real oil price shocks on labor market flows in the U.S. We first use smooth transition regression (STR) 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 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.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5096.

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Length: 32 pages
Date of creation: Jul 2010
Date of revision:
Publication status: published in: Energy Journal, 2011, 32 (3), 89-118
Handle: RePEc:iza:izadps:dp5096

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Keywords: unemployment; oil prices; business fluctuations; vacancies;

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Cited by:
  1. Matthias Gubler & Matthias S. Hertweck, 2011. "Commodity Price Shocks and the Business Cycle: Structural Evidence for the U.S," Working papers 2011/05, Faculty of Business and Economics - University of Basel.
  2. Chen, Shiu-Sheng & Hsu, Kai-Wei, 2012. "Reverse globalization: Does high oil price volatility discourage international trade?," Energy Economics, Elsevier, vol. 34(5), pages 1634-1643.

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