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

  • Matthias Kehrig
  • Nicolas Vincent

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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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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  1. Veronica Guerrieri & Daniel Hartley & Erik Hurst, 2010. "Endogenous gentrification and housing price dynamics," Working Paper 1008, Federal Reserve Bank of Cleveland.
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  11. John Haltiwanger & Steven J. Davis, 1999. "On the Driving Forces behind Cyclical Movements in Employment and Job Reallocation," American Economic Review, American Economic Association, vol. 89(5), pages 1234-1258, December.
  12. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
  13. Polgreen, Linnea & Silos, Pedro, 2009. "Crude substitution: The cyclical dynamics of oil prices and the skill premium," Journal of Monetary Economics, Elsevier, vol. 56(3), pages 409-418, April.
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  15. repec:spo:wpecon:info:hdl:2441/10031 is not listed on IDEAS
  16. 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, vol. 2(3), pages 419-453, November.
  17. Kambourov, Gueorgui & Manovskii, Iourii, 2004. "Occupational Mobility and Wage Inequality," IZA Discussion Papers 1189, Institute for the Study of Labor (IZA).
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