An empirical inquiry into the distributional consequences of energy price shocks

We estimate how energy shocks affect the functional distribution of income. Using structural vector autoregressions identified with an external instrument, we find that an increase in oil prices leads to a substantial and long-lasting decline in the wage share. Real aggregate wage income is significantly impacted, with a considerable part of this decline stemming from distributive dynamics. We also investigate possible asymmetries in the response to oil supply shocks, finding that the wage share is more sensitive to negative shocks than to positive ones. This suggests that wage earners lose from oil price hikes more than they benefit from declines. • Oil price shocks significantly reduce the labor income share in the U.S. • A 10 % oil price increase leads to a $669.6bn cumulative wage loss over 12 quarters. • Distributional effects explain up to 60 % of total wage losses after energy shocks. • The wage share responds more to oil price increases than to decreases.