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Gaetano Basso

University of California, Davis, USA

Authors: Gaetano Basso

Abstract: This paper answers the question of how resource-rich local labor markets adjust to large swings in the global price of natural resources. I provide a novel dynamic analysis of the consequences of natural resource price cycles by measuring the economic performance of oil-rich areas in the U.S. over three decades (1970-2000).  I find that the consequences of booms are different from the consequences of busts. Oil-rich economies adjust quickly to the new long-run equilibrium during booms by increasing local employment, nominal wages and income from capital.  Migration responses are limited, which is consistent with the small real wage gains that occur because of contemporaneous large increases in local prices. The negative impact of a bust is borne locally through higher non-employment and exacerbated by a large reduction in human capital investments observed during the preceding boom. The adverse long-run effects of boom-bust cycles mainly depress the lower end of the income distribution.

JEL Classification: Q33, R12, R23, J23, J31, J24, E32

Keywords: resource booms, local labor markets, oil shocks, human capital, income distribution

Full Text:  “Local Labor Markets Adjustments to Oil Booms and Busts”