The Effects of Oil Price Shocks on Job Reallocation

50 Pages Posted: 18 Dec 2012

See all articles by Ana Maria Herrera

Ana Maria Herrera

University of Kentucky - Gatton College of Business and Economics

Mohamad Karaki

Lebanese American University

Date Written: December 17, 2012

Abstract

This paper investigates the impact of oil price innovations on job creation and job destruction in U.S. manufacturing. We estimate a simultaneous equation model that nests symmetric and asymmetric responses of job flows to oil price shocks. We first explore whether the responses of job creation and job destruction to positive and negative oil price innovations are symmetric. No evidence of asymmetry is found in response to a one standard deviation innovation, and only some evidence is found for a two standard deviation innovation. Moreover, evidence of asymmetry vanishes when we control for data mining. We then investigate whether firms, when faced with an unexpected increase in oil prices, shed jobs at a faster rate than the rate at which they create jobs. We find that positive innovations lead to a decline in net employment and an increase in job reallocation, the latter stemming from search and matching issues faced by heterogeneous firms and workers. Yet, when we control for data mining, this effect appears not to be statistically significant. Finally, we investigate whether the response of job flows changed during the Great Moderation and we inquire about the role of job reallocation in accounting for these changes. Our results point to a smaller response of job creation and job destruction during the Great Moderation, but an increase in the intensity of job reallocation. The source of these changes appears to be a change in the transmission of oil price shocks and not a reduction in the volatility of these innovations.

Keywords: job flows, oil price shocks, business cyles

JEL Classification: E24, E32, Q43

Suggested Citation

Herrera, Ana Maria and Karaki, Mohamad, The Effects of Oil Price Shocks on Job Reallocation (December 17, 2012). Available at SSRN: https://ssrn.com/abstract=2190575 or http://dx.doi.org/10.2139/ssrn.2190575

Ana Maria Herrera (Contact Author)

University of Kentucky - Gatton College of Business and Economics ( email )

Lexington, KY 40506
United States

HOME PAGE: http://gatton.uky.edu/faculty/herrera

Mohamad Karaki

Lebanese American University ( email )

P.O.Box 36
Chouran-Beirut 1102 2801
Beirut
Lebanon

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