Oil Supply Shocks Reshape Jobs Worldwide, Hitting Importers and Workers Unevenly

In a collaborative effort between the International Monetary Fund (IMF) and the University of Oxford, researchers Diego B. P. Gomes, Lisa Kolovich, and Hannah Yi Wei have released a groundbreaking working paper titled “Oil Shocks and Labor Market Developments.” The study spans data from 1975 to 2022, covering 89 countries, and provides the most comprehensive analysis yet of how oil supply shocks ripple through global labor markets. Using a novel high-frequency oil shock index developed by Känzig (2021) and detailed labor statistics from the International Labour Organization (ILO), the authors quantify the effects of oil price surges, triggered primarily by OPEC announcements, on employment, unemployment, and labor force participation. Their findings reveal that these shocks leave deep, asymmetric, and long-lasting marks across countries, sectors, and demographics.

Job Losses Are Deep and Recovery Is Uneven

The analysis shows that when oil prices rise sharply, by 10 percent or more, labor market conditions deteriorate swiftly and stubbornly. Employment-to-population ratios fall quickly and do not fully recover even five years later. Unemployment spikes within the first few quarters and remains elevated for the long term. Meanwhile, labor force participation responds less predictably. Though initially flat, it tends to decline modestly over time, reflecting both discouraged workers exiting the market and fewer opportunities drawing new entrants. In many economies, particularly those lacking strong social protection systems, this translates to greater labor market vulnerability for lower-income households. The research highlights that oil shocks trigger more than just macroeconomic tremors; they displace workers and suppress job creation in ways that persist long after oil prices stabilize.

Contractionary Shocks Hurt More Than Expansionary Ones Help

One of the most revealing insights from the study is the sharp asymmetry in how labor markets respond to contractionary versus expansionary oil shocks. When oil supply tightens, leading to price increases, labor markets suffer persistent damage. Employment declines begin with a lag but deepen steadily over time, while unemployment rises immediately and stays elevated. Curiously, labor force participation initially rises in response, as households push more members into the job market to offset lost income, but this is only temporary. On the flip side, when oil supply expands and prices drop, any improvement in labor conditions is modest and short-lived. Employment may edge upward initially, but these gains quickly vanish, and unemployment rates fluctuate without establishing a clear downward trend. Participation rates even fall in the medium term, possibly due to reduced pressure on secondary earners. This asymmetry underscores a structural vulnerability: oil price hikes cause far more damage than price declines can repair.

Geography Matters: Importers Struggle, Exporters Gain (Barely)

The paper makes a compelling case for how a country’s role in global oil trade determines the severity of labor market consequences. In oil-importing nations, price hikes translate into sharp reductions in employment and persistent increases in unemployment. These countries also experience a steady decline in labor force participation, suggesting that energy cost pressures reverberate widely, making it harder for people to find and keep jobs. In contrast, oil-exporting countries see modest improvements: employment gradually rises, labor force participation trends upward, and unemployment largely remains stable. Yet even these gains are limited and far smaller in magnitude than the losses experienced by importers. This imbalance highlights the structural asymmetries embedded in the global economy, where resource dependence, rather than resilience, dictates the depth of labor shocks. The study underscores the need for energy policy and labor market design to work hand-in-hand, especially in net-importing economies that remain exposed to global fuel volatility.

Sectoral and Gender Impacts Reveal Hidden Vulnerabilities

Beyond geography, the study uncovers significant disparities across sectors and between men and women. Oil-intensive sectors, such as mining, construction, and transportation, suffer sharp and immediate job losses following an oil supply shock. However, the research also finds that oil-moderate sectors, previously thought to be more insulated, experience delayed but equally severe declines. This convergence suggests that oil price shocks exert economy-wide pressure, spilling over into areas not directly tied to fuel costs through channels like reduced consumer demand and business investment. Gendered impacts are equally stark. Men, who are more concentrated in oil-intensive industries, bear the brunt of early job losses and unemployment spikes. Yet women, more often employed in services or informal sectors, face longer-lasting declines in employment and labor force participation. The result is a narrowing of gender gaps in the short term due to men’s steep initial losses, but a widening over time as women struggle to re-enter the workforce.

Labor Market Inequality Is Deepened, Not Resolved, by Oil Shocks

The authors back their conclusions with an array of robustness checks, testing the validity of their results across different age groups, lag structures, and macroeconomic controls like inflation and GDP growth. They also refine their oil shock index by removing U.S.-specific economic data to focus on global effects, and the findings remain unchanged. The message is clear: oil supply shocks do not just disturb the economy’s surface, they restructure labor markets at their core. From a policy perspective, this means that energy volatility must be treated not just as a macroeconomic risk but as a social one. Governments, especially in oil-importing countries, need to invest in labor protections, retraining programs, and sectoral diversification to shield workers from the collateral damage of energy-driven crises. The uneven toll of oil shocks is not only a story of commodity markets, it is a story of labor, equity, and long-term economic resilience.