Asymmetric effects of the WTI crude oil price on unemployment rates: a comparative study of Canadian provinces and the United States

Abstract

Since 2014, Canada has been experiencing a higher unemployment rate due to a slump of the crude oil price. Using a monthly data set of the West Texas Intermediate (WTI) crude oil spot price and unemployment rates of Canadian provinces and the United States from January 1976 to October 2016, we examine the asymmetric effects of oil price on unemployment rates. Specifically, we split the sample into the pre‐technological boom (January 1976 to March 1995) and post‐technological boom periods (April 1995 to October 2016) and analyse whether the asymmetric effects are discernible in these two periods. This is done by applying the ordinary least squares regressions and Granger causality tests. Our findings confirm the asymmetric effects for the full sample in the United States. In Canada, the negative and asymmetric relationship is conspicuous particularly in the post‐tech period, and this relationship is more prominent in three oil‐producing Canadian provinces namely Alberta, Saskatchewan and Newfoundland & Labrador. It is noticeable that both in Canada and in the three provinces, the falling oil price affects unemployment adversely only in the post‐tech period. Granger causality tests support the short‐run causal relationships between changes in oil price and unemployment rate in the post‐tech period.