OilShocksandLaborMarketDevelopments

DiegoB.P.Gomes,LisaKolovich,andHannahYiWei*WP/25/145

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TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement.

2025

JUL

?2025InternationalMonetaryFund WP/25/145

IMFWorkingPaper

Strategy,PolicyandReviewDepartment

OilShocksandLaborMarketDevelopments

PreparedbyDiegoB.P.Gomes,LisaKolovich,andHannahYiWei

AuthorizedfordistributionbyMoniqueNewiakJuly2025

IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement.

ABSTRACT:Thispaperexamineshowoilshocksshapelabormarketoutcomesacross89countriesfrom1975to2022.Leveragingahigh-frequencyoilsupplyshockseriesandarichpanelofquarterlylabormarketdata,wefindthatshocksraisingoilpricestriggersharpandpersistentemploymentlosses,particularlyinoil-importingcountries,oil-intensivesectors,andamongmaleworkers.Delayedbutenduringemploymentdeclinesalsoemergeinoil-moderatesectorsandamongfemaleworkers,revealingbroaderlabormarketimplications.Incontrast,employmentgainsinoil-exportingcountries,andfollowingexpansionarysupplyshocks,arecomparativelymodest.Laborforceparticipationrespondslessconsistently,withpatternsdisplayinghighervariability.Thesefindingshighlighthowoilshockstransmitunevenlythroughlabormarkets,withlastingimpactsacrosscountries,sectors,anddemographicgroups,extendingwellbeyondshort-termmacroeconomicfluctuations.

RECOMMENDEDCITATION:DiegoB.P.Gomes,LisaKolovich,HannahYiWei.2025.“OilShocksandLaborMarketDevelopments”,IMFWorkingPaperNo.2025/145

JELClassificationNumbers:

J21,Q43,E24

Keywords:[TypeHere]

labormarket;oilsupplyshocks;employmentheterogeneity;high-frequencyidentification;cross-countrylaboradjustment

Author’sE-MailAddress:

dgomes@;lkolovich@;

yi.wei@economics.ox.ac.uk

WORKINGPAPERS

OilShocksandLaborMarketDevelopments

PreparedbyDiegoB.P.Gomes,LisaKolovich,andHannahYiWei

1

1WearegratefultoMoniqueNewiak,AxelSchimmelpfennig,ChieAoyagi,andMarinaMendesTavaresfortheirconstructivecommentsandvaluablesuggestions.

IMFWORKINGPAPERS

TitleofWP

INTERNATIONALMONETARYFUND

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10

Contents

TOC\o"1-2"\h\z\u

Introduction 3

DataandEmpiricalStrategy 6

OilSupplyNewsShock 6

PanelData 7

EmpiricalStrategy 7

Results 8

Baseline 8

AsymmetricTransmission 9

OilImportersversusOilExporters 11

SectoralAnalysis 13

Sex-DisaggregatedResults 15

RobustnessChecks 18

Conclusion 19

AnnexI.BaselineSample 20

AnnexII.RobustnessResults 22

References 24

BOXES

Notableoffiguresentriesfound.

FIGURES

Notableoffiguresentriesfound.

TABLES

Notableoffiguresentriesfound.

Introduction

Oilshocksareamongthemostconsequentialglobaleconomicdisturbances,witheffectsthatextendwellbeyondoutputandinflation(Kilian,2009;Barrellandothers,2011).Fluctuationsinoilpricescanleadtodisruptionsinlabormarketdynamicsbyalteringproductioncostsandshiftingdemandacrosssectors.Whilethemacroeconomicconsequencesofoilshockshavebeenwidelystudied,theirimplicationsforlabormarketoutcomes—suchasemployment,unemployment,andlaborforceparticipation—remainlesswellunderstood.Thisisparticularlyevidentwhenconsideringcross-countryheterogeneity,sectoralcomposition,anddemographicdifferentials.Amoregranularunderstandingofthesepatternsiscrucialforidentifyingandassessingthefulleconomicanddistributionalimpactofoilshocksandfordesigningtargeted,context-sensitivepolicyresponses.

Recentresearchhasincreasinglyexaminedthelabormarketeffectsofoilandotherenergyshocksinvariousnationalandregionalcontexts.Forinstance,studieshaveanalyzedtheemploymentconsequencesofoilboomsandbustsintheUnitedStates(MaurerandPotlogea,2017),oilpricefluctuationsinNigeria(Ologbenla,2020),thedeclineofthecoalindustryintheUnitedKingdom(Aragónandothers,2018),andoilandgasdiscoveriesinNorway(Bennettandothers,2021).Otherworkhasemployedcross-countrydatatotracebroaderemploymenteffects(Arezkiandothers,2017;Jiménez-RodríguezandSánchez,2005).Thesecontributionshavedeepenedinsightsintolabormarketimpactsofenergyshocks,butimportantquestionsremainaboutthechannelsthroughwhichtheseshocksoperateandthecontextualfactorsthatshapetheireffects.

Inthispaper,weaddressthisgapintheliteraturebyprovidingaglobal,disaggregatedanalysisoflabormarketresponsestooilsupplyshocks.Usingarichpanelofquarterlylabormarketdataacross89countriesfrom1975to2022,weestimatethedynamiceffectsofoilshocksonemployment-to-populationratios,unemploymentrates,andlaborforceparticipationrates.OuranalysiscombinesthisextensivedatasetwithK?nzig’s(2021)innovativeoilshockseries,whichleveragesboththeinstitutionalnuancesofOPECandthebenefitsofhigh-frequencydata.Throughalocalprojectionmethod(Jordà,2005),weestimatetheeffectsofoilsupplyshocksonlabormarketoutcomesoverafive-yearhorizon.Acentralcontributionofourpaperisthedecompositionoflabormarketresponsesalongfouraxes:(i)asymmetriesbetweencontractionaryandexpansionaryoilshocks;(ii)differencesbetweenoil-importingandoil-exportingcountries;(iii)variationacrossoil-intensiveandoil-moderatesectors;and(iv)sex-disaggregatedlabormarketeffects.Suchadisaggregatedlensyieldsaricherunderstandingofhowoilshocksaretransmittedthroughtherealeconomy,complementingexistingresearchonmacroeconomicandlabormarketdynamics(BlanchardandGalí,2011;RameyandVine,2010;Kilian,2008).

Ourresultsrevealseveraldistinctivepatternsinlabormarketadjustments.First,oilsupplyshocksgeneratebothimmediatedisruptionandlastingdislocation.Employmentfallssharplyandrecoversonlypartially,whileunemploymentrisesquicklyandremainselevated,signalingprolongedweaknessinlabordemand.Laborforceparticipationalsodeclines,thoughmoremoderatelyandunevenly.Thesepatternssuggestthatmostadjustmentoccursthroughjoblossratherthanwidespreadlabormarketexit.Severalmechanismsmayunderliethisresponse:elevatedenergycostsmaypassthroughtohigherwagesandsuppresshiring(BabaandLee,2022),sectoralreallocationwithsearchandmatchinginefficiencymaybeslowandfrictional(HerreraandKaraki,2015),andlimitedsocialprotectionsmaykeepworkersinthelaborforcedespitedeterioratingjobprospects(UgargolandParvathy,2023).

Ouranalysisalsorevealsmarkedasymmetriesinhowcontractionaryandexpansionaryoilshocksaffectlabormarketoutcomes,withafocusonaggregateemploymentratherthanoil-intensivesectors,whichwewilldiscusslater.Contractionaryshocks,characterizedbyreductionsinoilsupplyandrisingoilprices,leadtodelayedbutpersistentdeclinesinemploymentandarapid,sustainedriseinunemployment.Laborforceparticipationtemporarilyincreases,likelyreflectinganaddedworkereffectorintensifiedjobsearchashouseholdsrespondtojobloss.Incontrast,expansionaryshocksproduceshort-termemploymentgainsandfallingunemployment,buttheseimprovementsarenotmatchedbyariseinparticipation.Instead,laborforceparticipationdeclinesinthemediumrunandrecoversonlygradually,possiblyduetoincomeeffectsthatreducetheneedforsecondaryearnerstoremainactiveinthelabormarket.Theseasymmetrieshighlightthatnegativeshockscausedeeperandmoreprolongeddamage,whilethebenefitsofpositiveshocksaremoreunevenacrosslabormarketmargins.

Further,wefindthatlabormarketresponsesvarysignificantlybetweenoil-importingandoil-exportingcountries.Importersexperiencesharpemploymentlossesandrisingunemployment,bothwithonlypartialrecoveryovertime,alongsideapersistentdeclineinlaborforceparticipation.Incontrast,exportersseemoregradualandmodestgains:employmentriseswithalag,unemploymentincreasesslightlybeforereturningtobaseline,andlaborforceparticipationgrowssteadily.Importantly,themagnitudeofemploymentgainsinexportingcountriesissmallerthanthelossesfacedbyimporters.Sectoralpatternsofferfurtherinsight:employmentinoil-intensiveindustriesdropssharplyandremainslow,whileevenoil-moderatesectorsexperiencedelayedbutsustaineddeclines,indicatingthatoilshockspropagatebeyonddirectlyexposedsectors.Thesefindingsunderscorethecriticalroleoftradeexposureandsectoralcompositioninshapinglabormarketvulnerabilitytooilshocks.

Finally,weprovidenovelevidenceondisparitiesbetweenmen’sandwomen’slabormarketresponsestooilsupplyshocks,anarealargelyoverlookedinexistingresearch.Theseshocksaffectmenandwomendifferentlylikelyduetodisparitiesinoccupationaldistribution,sectoralexposure,andaccesstojobsecurity(Ologbenla,2020;BaconandKojima,2008).Ourresultsshowthatmenaremoreseverelyaffectedintheshortrun,butwomenexperiencemorepersistentemploymentlossesovertime.Thismayreflectmen’sconcentrationinoil-intensivesectorssuchasminingandconstructionthatsufferimmediatebutfront-loadedemploymentdeclines,whilewomenaremorelikelytoworkinservice-orientedorinformalsectorsthatfaceslowerbutmoreprolongeddisruption.Ourresultsalsoshowdivergingtrendsinlaborforceparticipation:men’sparticipationinitiallyfallsandstabilizes,whilewomen’sdeclinesgraduallyandpersistently.Thesefindingshighlighttheneedtoconsiderdifferencesinlabormarketstructuresbetweenmenandwomenwhenevaluatingthebroaderimpactsofoilshocks.Table1summarizesourfindings.

Table1:SummaryofFindings

(ResponsetoOilSupplyNewsShock,Normalizedtoa10percentOilPriceIncrease)

Employment-to-PopulationRatio

UnemploymentRate

LaborForceParticipationRate

Baseline

Sharpdeclinewithpartialrecovery;remainsnegative

Rapidrisewithslowdecline;remainselevated

Milddecline,unstableresponse,someeventualrebound

AsymmetricTransmission

ContractionaryShocks

Delayedbutpersistentdrop

Immediateandlastingrise

Temporaryrise,peaksmid-horizon,returnstobaseline

ExpansionaryShocks

Short-rungain,thendipandrecoverynearbaseline

Sharpdrop,partialrebound,thendeclinesagain

Medium-rundip,slowrecoverynearbaseline

NetOilTrade

OilImporters

Sharpdrop,partialrebound;endsbelowbaseline

Risesquickly,slowrecovery;stayselevated

Persistentdecline

OilExporters

Gradualrise;peakslate

Milduptick,returnstobaseline

Steadyincreaseovertime

SectoralAnalysis

Oil-Intensive

Immediate,sharpdrop;remainsbelowbaselinelong-term

Notavailable

Notavailable

Oil-Moderate

Delayeddecline,medium-andlong-termdrop

Notavailable

Notavailable

Sex-Disaggregated

Men

Sharpshort-termdropbutfasterrebound

Mirrorsemployment;steeprisewithfasterrecovery

Fallsinitiallyandstabilizesnearbaseline

Women

Lessseverebutpersistentdeclinewithlimitedrecovery

Mirrorsemployment;milderincreasewithslowrecovery

Gradual,sustaineddecline

Theremainderofthepaperisorganizedasfollows.Section2detailsthedataandoutlinestheempiricalstrategyusedinouranalysis.Section3presentsthemainresults,examiningtheeffectsofoilshocksonlabor

marketoutcomes.Section4providesathoroughdiscussionofrobustnesscheckstovalidateourfindings.Section5concludes.

DataandEmpiricalStrategy

WefirstdescribetheoilshocksdatasetconstructedbyK?nzig(2021)andthendiscussthequarterlycountry-paneldataonemployment,unemployment,andlaborforceparticipationfromtheInternationalLaborOrganization(ILO).Finally,wedescribeourlocalprojectionmodelstoestimatethelabormarketimpactofoilsupplyshocks.

OilSupplyNewsShock

K?nzig(2021)developsanovel“oilsupplynewsshock”bybuildinguponthestrategyadoptedbyGertlerandKaradi(2015),amongothers,whousehigh-frequencyidentificationtechniquestocomputemonetarypolicyshocksaroundcentralbankannouncements.

1

Exploitingasimilarapproach,K?nzig(2021)firstconstructsoilsupplysurprises,proxiedbychangesinspotcrudeoilfuturespriceswithintightwindowsaround119OPECannouncementsfrom1983to2017.TheauthorthenusestheoilsupplysurpriseseriesasanexternalinstrumenttoidentifyoilsupplynewsshocksinaSVARmodeloftheoilmarket.

2

Weobtainedanupdatedversionoftheseriesfromtheauthor,extendingthedatathrough2022andcovering150OPECannouncements(Figure1,leftpanel).ThefinalestimatedmonthlyshockseriesspansfromJanuary1975toDecember2022andiscalibratedtoreflectanunexpected10percentincreaseinthespotcrudeoilprice(Figure1,rightpanel).

Figure1.Resultsoftheestimationprocessofoilsupplynewsshocks

1K?nzig(2021)referstotheshockseriesasthe“oilsupplynewsshock”becauseitunderscorestheimportanceofoilsupplynewsinshapingeconomicexpectationsandoutcomes.

2TheexternalIVapproachallowsformeasurementerrorintheinstrument(oilsupplysurprises).Italsohelpstotraceoutresponsesoffinancialandmacrovariablesjointly.TheSVARmodelofK?nzig(2021)isbasedontherealoilprice,worldoilproduction,worldoilinventories,worldindustrialproduction,industrialproductionintheUS,andtheUSconsumerpriceindex(CPI),withlagorderof

12.TheidentificationsamplerangesfromJuly1983toDecember2022,andtheestimationsampleextendsfromJanuary1974toDecember2022.

Notes:OilsupplysurprisesseriesandoilsupplynewsshockseriesestimatedaccordingtoK?nzig(2021).Autocorrelationscalculatedbytheauthors.

K?nzig(2021)highlightsseveralbenefitsofusingtheoilsupplynewsshock,establishingitasasuitableexogenousshockforourstudy.First,theshockseriesalignswithkeyhistoricaloilmarketevents,particularlyOPECannouncementsthathadasignificantimpactonexpectationsaboutfutureoilsupply.Someoftheepisodesincludemajorsupplydisruptions,suchasthe1990GulfWarandthe2008globalfinancialcrisis,whereOPEC’sactionswerepivotal.Second,itisnotpredictablebymacroeconomicorfinancialvariables.

Third,otherstructuralshocks,suchasglobaldemandoruncertaintyshocks,shownocorrelationwiththismeasure.Additionally,wefoundnoevidenceofautocorrelationintheshockseries(Figure1,bottompanel).

PanelData

Weusequarterlylabormarketdata—employment-to-populationratios,unemploymentrates,andlaborforceparticipationrates—fromtheILO.Wefocusonthepopulationaged25andolder,withdatadisaggregatedbysex,andcover89countriesfrom1975to2022.Usingdataforthispopulationresultsinalargernumberofcountrieswithfewermissingdatacomparedtootheragegroups.ThelistofcountriesalongwiththeircorrespondingtimespanofdataavailabilityisprovidedinAnnexI.

3

TheILOalsoprovidesdatafor21disaggregatedsectorsusingtheISICcodesattheone-digitlevel,enablingustotestforsectoralheterogeneity.

Oilshocksarelikelytoaffectcountriesbasedontheirdependenceonoil.Togaugetheextenttowhichdifferentcountriesreacttooilsupplynewsshocks,wematchourpanelwiththenetoiltrade(involume)foreachcountryfromtheIMF’sWorldEconomicOutlook(WEO)database.Thenetoiltradeiscalculatedasthedifferencebetweenthevolumeofoilexportsminusthevolumeofoilimports.Foreveryquarter,weclassifycountriesasoilexportersiftheirnetoiltradeispositiveinthatquarter,andasoilimportersotherwise.Inthematchedsample,84.4percentofcountry-quarterobservationsareclassifiedasoilimportersand15.6percentasoilexporters.

EmpiricalStrategy

WeuselocalprojectionsàlaJordà(2005)toestimatetheresponsesoflabormarketoutcomestooilsupplynewsshocks.Countriesareindexedby????andtime(quarter-yearpairs)by????.Additionally,wedenoteby

3Ourpaneldataisnotbalanced,meaningthatitdoesnotcontainobservationsforeachcountryandeachtimeperioduniformly.Thenumberofobservationsvariesbycountryandlabormarketvariable,dependingontheavailabilityofdata.

?thehorizonoftheestimatedresponse,whichrangesuptotwentyquarters(?=0,…,19)aftertheshock.Let

????????,????bethelabormarketoutcomeofinterest,????????theoilsupplynewsshock,?????,????countryfixedeffects,and?????,????

timefixedeffects.Foreachhorizon?,weestimateaseparatefixed-effectspanelregressionasfollows:

4 4

????????,????+?=?????+?????????????+??????,?????????????????+??????,????????????,?????????+?????,????+?????,????+????????,????,?,

????=1 ????=1

(1)

where????????,????,?istheresidualterm.Standarderrorsarerobustandclusteredatthecountrylevel.Wecontrolforuptofourquartersoflagsoftheshockandoutcomevariablesinthebaseline.Theestimatedshockcoefficients?????quantifytheaccumulatedchangeathorizon?inresponsetoanoilsupplynewsshock,normalizedtoreflecta10percentincreaseintheoilprice.Fortheheterogeneityanalyses,includingtheasymmetrictransmissionofshocks,oilimportersversusoilexporters,sectoralimpacts,andmenandwomen,weusethesameempiricalapproachbutrestrictthedatatotherelevantsub-samplestoassesstheheterogeneouseffectsofoilshocks.Inthefiguresthatfollow,wepresenttheseresultsgraphicallybyplottingtheestimatedcoefficientswiththeirconfidenceintervalsontheverticalaxisagainsttheirrespectivehorizonsonthehorizontalaxis.

Results

Inthissectionwepresentthemainresultsofouranalysisonthelabormarketimpactsofoilsupplyshocks.Webeginbyexaminingtheeffectsoftheseshocksontheemployment-to-populationratio,unemploymentrate,andlaborforceparticipationrate.Wethenexploretheasymmetrictransmissionofcontractionaryversusexpansionaryoilsupplyshockstotheselabormarketoutcomes.Followingthis,weanalyzethedifferentiatedimpactsonoil-importingandoil-exportingcountries,offeringinsightsintohowthenatureofacountry’srelationshipwithoilshapesitslabormarketresponse.Wefurtherextendourinvestigationtothesectorallevel,comparingtheeffectsofoilshocksbetweenoil-intensiveandoil-moderatesectors.Finally,wepresentresultsseparatelyformenandwomen,highlightinghowoilshockscanaffecttheirlabor?marketoutcomesdifferently.

Baseline

Figure2presentstheimpulseresponsesfortheemployment-to-populationratio,unemploymentrate,andlaborforceparticipationratefollowinganoilsupplyshock.Theestimatesindicatethatapositiveshock,normalizedtoreflecta10percentincreaseinoilprices,leadstoapersistentweakeningofaggregatelabormarketconditions.Theemployment-to-populationratiofallssharplyintheinitialquartersfollowingtheshock,reachingatroughofapproximately0.25percentagepointsbelowbaselineintheseventhquarter.Whilethedeclineslowsinthesecondyear,theratioremainspersistentlynegativeanddoesnotreturntopre-shocklevels.Bythe20thquarter,itstillsitsroughly0.14percentagepointsbelowbaseline,indicatinglastinglabormarketscarring.Inparallel,theunemploymentraterisesrapidly,peakingatapproximately0.23percentagepointsabovebaselineintheeighthquarter.Thisincreaseisconsistentwithweakerjobcreationorhigherseparationratesintheaftermathoftheshock.Althoughtheratebeginstodeclineafteritspeak,theadjustmentisgradual,andunemploymentremainselevated,hoveringaround0.1percentagepointsabovebaselineeven20quarterslater,indicatingaprotractedrecovery.

Thelaborforceparticipationrateexhibitsamoremutedandlessstableresponse.Itfluctuatesintheshortrunandbeginstodeclinemorevisiblyaroundthefourthquarter,reachingatroughofapproximately0.11percentagepointsbelowbaselinebytheseventhquarter.Whiletheresponseisstatisticallysignificantinthe

mediumterm,thelonger-rundynamicsaremoreuncertain:laborforceparticipationremainssomewhatsubduedbutshowssignsofpartialrecovery,withwideconfidenceintervalsinlaterperiods.Thisindicatesthatoilsupplyshocksnotonlydiminishemploymentopportunitiesbutalsopromptsomeindividualstoexitthelaborforcealtogether.Takentogether,theseresponsespointtoabroad-baseddeteriorationofthelabormarketfollowingoilsupplyshocks,highlightinghowenergydisruptionscanreverberatethroughthewidereconomy,reshapinglaborsupplyanddemanddynamics.

Figure2.Impulseresponsestooilsupplyshocks

Notes:Thesolidlinesrepresenttheimpulseresponsetoanoilsupplynewsshockthatisnormalizedtoreflecta10percentincreaseintheoilprice.Thelightanddarkgrayshadedareasrepresentthe90percentconfidenceintervalandonestandarddeviation,respectively.

AsymmetricTransmission

Theliteratureonasymmetriceffectsofoilshockshasgainedsignificantattentioninbothacademicandpolicy-makingcircles.Thisgrowinginterestislargelyduetothecomplexandvariedimpactsthatoilpricefluctuationshaveonglobaleconomicstabilityandfinancialmarkets.ResearchershavefoundthatpositiveandnegativeoilpriceshockscanleadtomarkedlydifferentoutcomesinGDPgrowth(Jiménez-RodríguezandSánchez,2005;Mork,1989)andstockmarketreturns(Zhuandothers,2016).Webuildonthisburgeoningbodyofworkbyexploringtheasymmetriceffectsofoilsupplynewsshocksonlabormarketoutcomes.

Specifically,contractionary(expansionary)oilsupplynewsshocksreflectOPEC’sannouncementofreduced(increased)oilsupplyandtheaccompanyingincrease(decrease)inoilprice.

Interestingly,wefindthatlabormarketoutcomesreactratherdifferentlytothesetwotypesofshocks.

Figure3distinguishesbetweencontractionary(leftpanels)andexpansionary(rightpanels)oilsupplyshocks,offeringamorenuancedviewoftheireffects.Contractionaryshocks,associatedwithOPECtighteningand

risingoilprices,leadtoapronouncedandpersistentdeteriorationinlabormarketconditions.Theemployment-to-populationratioexhibitsamodestinitialdipinthefirsttwoquartersfollowingthecontractionaryshockbutquicklystabilizesandremainsstatisticallyindistinguishablefromzerothroughquarterten.Startingaroundthe11thquarter,theratiobeginstodeclinemorenoticeably,witheffectsbecomingbothlargerandstatisticallysignificant.Bytheendofthe20-quarterhorizon,theemployment-to-populationratiostandsnearly0.45percentagepointsbelowbaseline,indicatingthattheadverseemploymenteffectsofcontractionaryoilshocksemergewithadelaybutpersistoncetheymaterialize.Thisdelayeddeclineinemploymentcontrastswithamoreimmediateresponseinunemployment.Theunemploymentrateincreasessharplyandpersistently,peakingataround0.6percentagepointsabovebaselineinquarter18,reflectingaprolongedweakeningofjob-findingprospectsorincreasedseparations.Thelaborforceparticipationrate,ontheotherhand,risesinresponse,peakingatabout0.25percentagepointsabovebaselinearoundthe11thquarter.However,thiseffectprovestransitory:theseriestrendsdownwardinthelaterquartersandreturnsclosetobaselinebytheendoftheforecasthorizon.Thispatternsuggestsatemporaryincreaseinlaborforceengagement,possiblyashouseholdsrespondtorisinglivingcostsorincomelossbyseekingadditionalwork,anadjustmentthatfadesasjobopportunitiestighten.

Incontrast,expansionaryshocksgeneratesmallerandmoretransitoryimprovements.Theemployment-to-populationratioincreasesmodestlyintheshortterm,peakingatapproximately0.22percentagepointsabovebaselinearoundthefourthquarter.However,thegainsprovefragile:theratiosubsequentlydeclines,bottomingoutnear-0.22percentagepointsbyquarterten,beforereboundingtopre-shocklevelstowardtheendofthehorizon.Thisbounce-backpatternmirrorsthetrajectoryoftheunemploymentrate,whichfallssharplyintheshortterm,reachingnear-0.27percentagepointsbyquarterfour.Theratethenrisesbacktowardbaselinelevelinquarter11,beforedecliningagaintoroughly-0.2percentagepointsbyquarter20.Theseoscillationssuggestamorevolatileanddrawn-outadjustmentinresponsetofallingoilprices.Thelaborforceparticipationrate,meanwhile,exhibitsasignificantdeclineinthemediumterm,reachingatroughofabout-0.3percentagepointsaroundthetenthquarter.Whileitgraduallyrecoversovertheremaininghorizon,theseriesremainsbelowbaselineuntiltheendoftheprojectionwindow.Thispatternmayreflectweakfollow-throughinlabordemandorbroadermacroeconomicuncertainty.

Takentogether,thesefindingsunderscoreaclearasymmetryinhowlabormarketsrespondtooilsupplyshocks.Contractionaryshocksleadtomorepersistentandpronouncedadverseeffects,particularlyinemploymentandunemployment.Incontrast,expansionaryshocksbringshort-termimprovementsinbothemploymentandunemployment.Whileemploymentgraduallyreturnstobaseline,theunemploymentrateinitiallyreboundsbeforeimprovingfurtheroverthelongerterm.Laborforceparticipationalsorespondsasymmetrically.Itrisestemporarilyaftercontractionaryshocks,likelyashouseholdsseekadditionalincomeinresponsetofinancialstrain,butfallstemporarilyfollowingexpansionaryshocks,possiblyaseconomicpressuresease.Inneithercasedoweobservesustainedchangesinparticipation.

Figure3.Asymmetrictransmission

Contractionary

Expansionary

Notes:Thesolidlinesrepresenttheimpulseresponsetoanoilsupplynewsshockthatisnormalizedtoreflecta10percentincreaseintheoilprice.Thelightanddarkgrayshadedareasrepresentthe90percentcon