Crude substitution: The cyclical dynamics of oil prices and the skill premium

Linnea Polgreen and Pedro Silos

Journal of Monetary Economics, 2009, vol. 56, issue 3, pages 409-418

Abstract: At the business cycle frequency, energy prices and the skill premium display a strong, negative correlation. This fact is robust to different de-trending procedures. Identifying exogenous shocks to oil prices using the Hoover-Perez [1994. Post hoc ergo propter once more: an evaluation of [`]Does monetary policy matter?' in the spirit of James Tobin. Journal of Monetary Econonmics 34, 47-73] dates, shows that the skill premium falls in response to such a shock. The estimation of the parameters of an aggregate technology that uses, among other inputs, energy and heterogeneous skills, demonstrates that capital-skill and capital-energy complementarity are responsible for this correlation. As energy prices rise, the use of capital decreases and the demand for unskilled labor--relative to skilled labor--increases, lowering the skill premium.

Keywords: Skill; heterogeneity; Energy; prices; Business; cycles; Capital-skill; complementarity (search for similar items in EconPapers)
Date: 2009
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Persistent link: http://EconPapers.repec.org/RePEc:eee:moneco:v:56:y:2009:i:3:p:409-418

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