Employment and energy uncertainty

This paper examines the effect of uncertainty on aggregate employment, private sector employment and employment in sectors that produce goods and services. Our empirical model is a structural vector autoregression with the multivariable GARCH-in-Mean, which we extend to permit the errors to be distributed multivariate exponential power. This distribution includes a shape parameter to characterize the degree of excess kurtosis. We find that increased uncertainty, measured from energy prices, has strong negative effects on employment, with the magnitude of the effect greater for employment in the private sector and goods producing sectors. We find that energy uncertainty contributes to a reduction in private sector employment growth more than 30 basis points on average, and by as much as 120 basis points during periods of extreme volatility. Once we account for the effects of uncertainty, we find that the dynamic response of employment to higher energy prices is unambiguously negative after about three months.