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The Effects of the Real Oil Price on Regional Wage Dispersion

Matthias Kehrig and Nicolas L. Ziebarth

American Economic Journal: Macroeconomics, 2017, vol. 9, issue 2, 115-48

Abstract: We find that oil supply shocks decrease average real wages, particularly skilled wages, and increase wage dispersion across regions, 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 supply shocks, have counterfactual implications for the response of wage dispersion. Only an additional response in labor supply can explain this latter fact, highlighting the importance of general equilibrium effects in a spatial context. We provide additional empirical evidence of regionally directed worker reallocation and housing prices consistent with our spatial model. Finally, we show that a calibrated version of our model can quantitatively match the estimated effects of oil supply shocks.

JEL-codes: E24 J22 J23 J24 J31 Q35 R23 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/mac.20150097
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