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The Labor Market Worsening Effects of a Resource Bust: Evidence from the Crude Oil Price Shock in Ecuador

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  • Parra-Cely, Sergio
  • Zanoni, Wladimir

Abstract

To assess the effects of an oil price bust on individual labor market outcomes, we leverage the 2015 exogenous decline in international oil prices with geographical variation in oil-dependency in Ecuador. To account for propagation mechanisms, we also test the causal effect of the oil price bust on public transfers to local autonomous governments. Reduced form results suggest a moderate oil price pass-through channel on wages and nonlabor earnings but not on labor supply and participation. Public transfers play an amplification role, as a one percentage point decrease in these funds implies workers in oil-dependent areas to experience a wage reduction of 1.5%. Spillover effects to nonextractive industries, with reduced economic activity at the firm level, seem to be the transmission channels explaining the drop in individual earnings during the oil price bust.

Suggested Citation

  • Parra-Cely, Sergio & Zanoni, Wladimir, 2022. "The Labor Market Worsening Effects of a Resource Bust: Evidence from the Crude Oil Price Shock in Ecuador," IDB Publications (Working Papers) 12268, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:12268
    DOI: http://dx.doi.org/10.18235/0004291
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    More about this item

    Keywords

    Resource bust; wages; public transfers; Ecuador; Extractivas; transformación productiva; región andina; Andean Region;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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