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Petroleum Price Elasticity, Income Effects, and OPEC's Pricing Policy

F. Gerard Adams and Jaime Marquez

Year: 1984
Volume: Volume 5
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No1-7
View Abstract

A standard result from static economic theory is that a monopolist with zero cost will maximize profits by charging the price at which the demand has unit elasticity. Yet, the demand for petroleum, as seen by consumers, is price inelastic, and empirical estimates of the price elasticity for petroleum are typically less than one. Given the relatively low production cost for Middle East oil and the optimization rule referred to above, a natural question is whether OPEC, acting as a monopoly, has exhausted its potential for forcing price increases or whether it will ultimately be able to charge still higher prices as it tries to optimize its earnings. This possibility of higher oil prices is important for OPEC and for oil-consuming countries-for OPEC because the finite nature of resources implies that excess production today represents an irrecoverable loss; for consuming countries because of the high cost of oil and the adverse consequences of still higher oil prices on inflation and unemployment.

Analyzing Impacts of Potential Tax Policy Changes on U.S. Oil Security

James L. Sweeney and Michael J. Boskin

Year: 1985
Volume: Volume 6
Number: Special Issue
DOI: 10.5547/ISSN0195-6574-EJ-Vol6-NoSI-8
No Abstract

Oil Price Shocks and Labor Market Fluctuations

Javier Ordóñez, Hector Sala and José I. Silva

Year: 2011
Volume: Volume 32
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No3-4
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We examine the impact of real oil price shocks on labor market flows in the U.S. We first use smooth transition regression (STAR) models to investigate to what extent oil prices can be considered as a driving force of labor market fluctuations. Then we develop and calibrate a modified version of Pissarides' (2000) model with energy costs, which we simulate in response to shocks mimicking the behavior of the actual oil price shocks. We find that (i) these shocks are an important driving force of job market flows; (ii) the job finding probability is the main transmission mechanism of such shocks; and (iii) they bring a new amplification mechanism for the volatility of the labor market, and should thus be seen as complementary of labor productivity shocks. Overall we conclude that shocks in oil prices cannot be neglected in explaining cyclical labor adjustments in the U.S.

Policy-Induced Expansion of Solar and Wind Power Capacity: Economic Growth and Employment in EU Countries

Jurate Jaraite, Amin Karimu and Andrius Kazukauskas

Year: 2017
Volume: Volume 38
Number: Number 5
DOI: https://doi.org/10.5547/01956574.38.5.jjar
View Abstract

Given the intensifying debates on whether governments should promote particular renewable energy technologies, the main objective of this study is to investigate the long-and short-run effects of policy-induced expansion of renewable solar and wind technologies on economic growth and employment in 15 European Union (EU) member states during 1990-2013 by using panel-data time-series econometric techniques. Instead of relying on renewable energy consumption or generation as commonly done in the literature, we focus on the capacity for solar and wind power generation, which is largely a consequence of the EU's renewable energy policies. In summary, we find that, to date, renewable energy policy-induced wind and solar power capacity promotes growth and/or employment in the short run, but these capacity increases do not stimulate economic growth in the long run in the EU-15 region. In fact, our results tend to support the opposite relationship: increases in wind and solar power capacity are associated with negative economic growth, at least at the total economy level. Keywords: Economic growth, Employment, European Union, Granger causality, Panel cointegration, Policy, Renewable energy capacity, Solar energy, Wind energy

Oil Prices and State Unemployment Rates

Mohamad B. Karaki

Year: 2018
Volume: Volume 39
Number: Number 3
DOI: 10.5547/01956574.39.3.mkar
View Abstract

This paper studies the effect of oil price shocks on U.S. state-level unemployment rates. First, using a test of symmetry, I evaluate whether the relationship between oil prices and state unemployment rates is symmetric. I find no evidence against the null of symmetry after accounting for data mining. Second, I use a symmetric structural VAR model to analyze the effect of oil supply shocks, aggregate demand shocks and oil-specific demand shocks on state unemployment. I find that an adverse supply shock triggers increases in unemployment, whereas a positive aggregate demand shock reduces the unemployment rate across most U.S. states. I also show that oil-specific demand shocks have little effect on state unemployment. Finally, I dig into the historical contribution of the various oil shocks to the changes in state unemployment rates during the shale boom period. I find that aggregate demand shocks contributed the most to the change of unemployment.

The Impacts of Lower Natural Gas Prices on Jobs in the U.S. Manufacturing Sector

Wayne Gray, Joshua Linn, and Richard Morgenstern

Year: 2019
Volume: Volume 40
Number: Number 5
DOI: 10.5547/01956574.40.5.wgra
View Abstract

The recovery of the U.S. manufacturing sector following the 2008-2009 economic recession coincided with a sharp drop in natural gas prices. To determine whether a causal connection in fact exists, we use confidential plant-level data for 1972-2012 to estimate the employment effects of changes in natural gas and other energy prices. Previous analyses have used aggregated data and failed to control for multiple drivers of employment dynamics, such as other input costs. We show that controlling for these factors substantially diminishes the effects of natural gas and electricity prices on manufacturing employment. Accounting for the direct effects of natural gas prices as well as the indirect effects via electricity prices, we estimate that the decline in natural gas prices between 2007 and 2012 raised overall manufacturing employment by 0.6 percent, and for gas-intensive industries, by 1.8 percent.

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