Racial and ethnic disparities in unemployment and oil price uncertainty

Abstract

This study investigates the effect of oil price uncertainty on unemployment rates by race and ethnicity. Oil price uncertainty is measured by using two alternative approaches: (1) implied oil price option volatility and (2) a structural vector autoregression with multivariate GARCH-in-Mean with the errors distributed multivariate-t. The findings indicate that increased oil price uncertainty strongly increases unemployment rates, with the magnitude of the effect much larger for Blacks and Hispanics than for Whites. The effect is economically significant, with an average drag of oil price uncertainty on the total unemployment rate of about 13 basis points, and about 35 basis during episodes of high uncertainty. The effect on Black and Hispanic unemployment rates is about twice as large. Among teenagers, the effects of uncertainty on unemployment rates is much more pronounced, led by Black teens, Hispanics teens and White teens. Robustness results using implied oil price option volatility after controlling for news-based measures of policy uncertainty further confirms our results. Additional analysis along gender lines reveals that the response of male unemployment rates to oil price uncertainty shocks tends to be larger in magnitude than the response for female unemployment rates of the same race or ethnicity. Overall, the results suggest that uncertainty not only suppresses employment, but that uncertainty also worsens racial disparities in employment.