Oil Price Uncertainty and U.S. Employment Growth

This paper studies the effects of oil price changes on U.S. aggregate and sectoral employment growth in the presence of time-varying oil price uncertainty. We estimate a bivariate GARCH-in-Mean VAR model using U.S. monthly data of oil prices and employment growth for the period 1974 m2:2018 m11. Based on the results, we show that an increase in oil prices reduces total employment growth and that in most private sectors, but the public sector is largely unaffected. The effects on employment growth in various ”hub” sectors are also different. Furthermore, employment growths at both aggregate and disaggregate levels respond asymmetrically to positive and negative oil price shocks, which could possibly be attributed to oil price uncertainty. This asymmetric impact is more evident when the model is estimated on the entire sample than on the 1970s sample, implying that the role of oil price uncertainty in accounting for variations in employment growth can differ over time. These findings underline the empirical relevance of oil price uncertainty for the U.S. labor market dynamics.