Understanding Sectoral Labor Market Dynamics: An Equilibrium Analysis Of The Oil And Gas Field Services Industry

This paper examines the response of employment and wages in the US oil and gas field services industry to changes in the price of crude petroleum using a time series of quarterly data spanning the period 1972-2002. The author finds that labor quickly reallocates across sectors in response to price shocks but that substantial wage premia are necessary to induce such reallocation. The timing of these premia is at odds with the predictions of standard models— wage premia emerge quite slowly, peaking only as labor adjustment ends and then slowly dissipating. After considering alternative explanations, the author argues that a dynamic market clearing model with sluggish movements in industry wide labor demand is capable of rationalizing these findings.