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Oil Price Shocks and Labor Market Fluctuations

  • Ordóñez, Javier

    ()

    (Universitat Jaume I de Castelló)

  • Sala, Hector

    ()

    (Universitat Autònoma de Barcelona)

  • Silva, José I.

    ()

    (University of Kent)

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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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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  1. Davis, Steven J. & Haltiwanger, John, 2001. "Sectoral job creation and destruction responses to oil price changes," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 465-512, December.
  2. Silva, José Ignacio & Toledo, Manuel, 2009. "The Unemployment Volatility Puzzle: The Role of Matching Costs Revisited," MPRA Paper 17719, University Library of Munich, Germany, revised 08 Oct 2009.
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