The Effect of the Real Oil Price on Regional Wage Dispersion

50 Pages Posted: 8 May 2017

See all articles by Matthias Kehrig

Matthias Kehrig

Duke University; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Nicolas Lehmann-Ziebarth

Northwestern University

Multiple version iconThere are 2 versions of this paper

Date Written: March 22, 2017


We find that oil supply shocks decrease average real wages, particularly skilled wages, and increase wage dispersion across regions, particularly unskilled wage dispersion. In a model with spatial energy intensity differences and nontradables, labor demand shifts, while explaining the response of average wages to oil supply shocks, have counterfactual implications for the response of wage dispersion. Only an additional response in labor supply can explain this latter fact highlighting the importance of general equilibrium effects in a spatial context. We provide additional empirical evidence of regionally directed worker reallocation and housing prices consistent with our spatial model. Finally, we show that a calibrated version of our model can quantitatively match the estimated effects of oil supply shocks.

Keywords: wage dispersion, labor reallocation, skill heterogeneity, oil prices

JEL Classification: E240, J240, J310, J610

Suggested Citation

Kehrig, Matthias and Lehmann-Ziebarth, Nicolas, The Effect of the Real Oil Price on Regional Wage Dispersion (March 22, 2017). CESifo Working Paper Series No. 6408, Available at SSRN:

Matthias Kehrig (Contact Author)

Duke University ( email )

237 Social Sciences
Box 90097
Durham, NC 27708-0097
United States


National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Nicolas Lehmann-Ziebarth

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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