Abstract
It is not known how exogenous shocks in oil price impact city economies. This study examines unemployment rates in Texas cities in relation to oil price movements during the period 1995–2008. We find that unemployment in the bigger cities like Austin, Dallas, and Houston, is not related to oil prices in a significant way when compared to unemployment in the smaller border cites, especially in Laredo. Although the Texas economy has become more diversified and less vulnerable to oil price movements in the last two decades, smaller border cities still experience the effect of oil price shocks, possibly through the neighboring economy of Mexico. Our data indicate significant variations in the unemployment rate in Laredo due to movements in oil price. We observe improvements in the unemployment rates in Laredo as oil price increases.
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Notes
As a test of robustness, we conducted Granger causality test and variance decomposition using level data for El Paso. The results are similar to those of first-differenced data for El Paso. For example, we find evidence of causality from real WTI to unemployment levels for El Paso with an F-value of 3.62 (significant at the 1 % level). Similarly, we find evidence of higher variations in El Paso’s unemployment rates in levels (16.26 % in 24 months) due to shocks in real WTI.
A review of the coefficients shows that the sign is positive for the lag 2 oil price variable for the city of Houston indicating that unemployment rate in Houston increases within 2 months after an increase in oil price.
These figures are percent change in unemployment rates, not the raw change in unemployment rates.
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Shetty, S., Iqbal, Z. & Alshamali, M. Energy Price Shocks and Economic Activity in Texas Cities. Atl Econ J 41, 371–383 (2013). https://doi.org/10.1007/s11293-012-9361-z
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DOI: https://doi.org/10.1007/s11293-012-9361-z