The Wages of Oil

Abstract

This paper investigates how oil supply news shocks reshape labor market outcomes across the U.S. wage distribution from 1979 to 2019. I identify shocks using the Känzig (2021) high-frequency series, which isolates exogenous revisions to oil supply expectations from futures price changes in narrow windows around scheduled OPEC announcements. These shocks are applied to a monthly decile panel constructed from Current Population Survey Outgoing Rotation Group (CPS ORG) microdata covering approximately 13.2 million individual observations. I estimate contemporaneous effects via OLS with Newey-West standard errors and dynamic effects via Jordà (2005) local projections over a twelve-month horizon. A positive shock, normalized to a 10% oil price increase, generates what I call labor market consolidation. At the bottom of the distribution, hours and real wages rise on impact as workers extend labor supply to offset higher energy costs, but this gain unwinds by mid-horizon as unemployment climbs and proves persistent. Selection effects play a role as marginal workers lose their jobs. At the top, particularly among critical industry workers, the response in wage and hours is more durable. The net effect is a growing gap in outcomes between high- and low-wage workers in the months following the shock. A focused analysis of twelve critical industries documents amplified wage effects and an unemployment duration spike that is absent from the aggregate economy. These results imply that oil supply disruptions impose their heaviest medium-term costs on lower-wage households, and point toward targeted income support and distributional awareness in monetary policy as the most effective levers for easing the impact.