Istituto di Economia Internazionale - The Impact of Rising Energy Prices on Labor Demand: A Survey of the Recent Literature

Recent Articles

Read more about our latest published articles.

Review’s Archive

Corresponding Author:
Maurizio Conti, Department of Economics and Business, University of Genova, Italy

Coauthors:
Anna Bottasso, Department of Economics and Business, University of Genova, Italy and CIRIEC
Claudio Ferrari, Department of Economics and Business, University of Genova, Italy
Alessio Tei, Department of Economics and Business, University of Genova, Italy

The Impact of Rising Energy Prices on Labor Demand: A Survey of the Recent Literature

December 2, 2025
JEL classification: J20; Q40
Keywords: Energy Prices; Labor Market; Employment; Energy Transition

Abstract

In this study we review the empirical literature on the effect of energy prices on labor demand. After summarizing the various transmission channels, we critically evaluate the existing empirical studies, with a focus on recent works that have considered a reduced form approach. We find that increases in energy prices usually lead to a fall in employment levels, a result that appears to be rather robust across identification strategies, samples and types of data (e.g. industry versus firm level). Nonetheless, the employment decrease appears to be somewhat small, albeit potentially heterogenous across firm and sector characteristics. Some policy implications are briefly discussed.

Read the full article

Download the article in PDF format to read and print.

Bibliography

Acemoglu, D., P. Aghion, L. Bursztyin and D. Hemous (2012), “The Environment and Directed Technical Change”, American Economic Review, 102(1), 131-166.

Arellano, M. and O. Bover (1995), “Another Look at the Instrumental Variable Estimation of Error-Component Models”, Journal of Econometrics, 68(1), 29-52.

Bassanini, A. and A. Garnero (2013), “Dismissal Protection and Worker Flows in OECD Countries: Evidence from Cross-Country/Cross-Industry Data”, Labour Economics, 21, 25-41.

Blundell, R. and S. Bond (1998), “Initial Conditions and Moment Restrictions in Dynamic Panel Data Models”, Journal of Econometric, 87(1), 115-143.

Bossler, M., A. Moog and A. Schank (2023), “Labor Demand Responses to Changing Gas Prices”, B.E. Journal of Economic Analysis and Policy, 23(4), 1073-1080.

Bottasso, A., M. Conti and G. Sulis (2017), “Firm Dynamics and Employment Protection: Evidence from Sectoral Data”, Labour Economics, 48, 35-53.

Bretschger, L. and J. Ara (2024), “Complementarity Between Labor and Energy: A Firm-level Analysis”, Journal of Environmental Economics and Management, 124, 102934.

Cox, M., A. Peichl, N. Pestel and S. Siegloch (2014), “Labor Demand Effects of Rising Electricity Prices: Evidence for Germany”, Energy Policy, 75, 266-277.

Deschênes, O. (2012), Climate Policy and Labor Markets, in: D. Fullerton, C. Wolfram (Eds) “The Design and Implementation of U.S. Climate Policy”, NBER, University of Chicago Press, pp. 37-49.

Dussaux, D. (2020), The Joint Effects of Energy Prices and Carbon Taxes on Environmental and Economic Performance: Evidence from the French Manufacturing Sector, OECD Environment Working Papers No. 154, OECD Publishing: Paris.

Falk, M. and B.M. Koebel (2002), “Outsourcing, Inputs and Labor Demand”, Scandinavian Journal of Economics, 104(4), 567-86.

Fontagné, L., P. Martin and G. Orefice (2024), “The Many Channels of Firm’s Adjustment to Energy Shocks: Evidence from France”, Economic Policy, 39(117), 5-43.

Godinho, C. (2022), “What do we Know about the Employment Impacts of Climate Policies? A Review of the ex post Literature”, WIREs Climate Change, 13(6), 1-22.

Gray, W., R. Shadbegian and A. Wolverton (2023), “Environmental Regulation and Labor Demand: What Does the Evidence Tell Us?” Annual Review of Resource Economics, 15, 177-197.

Hassler, G., P. Krussel and C. Olovsson (2021), “Directed Technical Change as a Response to Natural-Resource Scarcity”, Journal of Political Economy, 129(11), 3039-3072.

Hille, E. and P. Möbius (2019), “Do Energy Prices Affect Employment? Decomposed International Evidence”, Journal of Environmental Economics and Management, 96, 1-21.

Jager, D., J. Ruist and J. Stuhler (2018), “Shift Share Instruments and the Impact of Immigration”, NBER Working Paper 24285.

Jovanović, M.N. (2025) “Spatial Allocation of Firms and Industries: An Overview of Theory and Practice v2.0”, Economia Internazionale/International Economics, 78(4), 487-618.

Juhász, R., N. Lane and D. Rodrik (2024), “The New Economics of Industrial Policy”, Annual Review of Economics, 16, 213-242.

Juselius, M. (2008), “Long-run Relationships between Labor and Capital: Indirect Evidence on the Elasticity of Substitution”, Journal of Macroeconomics, 30(2), 739-756.

Khan, M. and E. Mansur (2013), “Do Local Energy Prices and Regulation Affect the Geographic Concentration of Employment?” Journal of Public Economics, 101, 105-114.

Marin, G. and F. Vona (2021), “The Impact of Energy Prices on Socioeconomic and Environmental Performance: Evidence from French Manufacturing Establishments, 1997-2015”, European Economic Review, 135, 103739.

Marin, G. and F. Vona (2023), Labour Market Implications for the Sustainable Transition, in: F. Diaz Lopez, M. Mazzanti, R. Zoboli (Eds) “Handbook on Innovation, Society and the Environment”, pp. 345-357, EE Elgar.

Rajan, R.G. and L. Zingales (1998), “Financial Dependence and Growth”, The American Economic Review, 88 (3), 559-586.

Trinks, A. and E. Hille (2024), “Carbon Costs and Industrial Firm Performance: Evidence from International Microdata”, Mimeo.

Volverton A., R. Shadbegian and W. Gray (2022), “The US Manufacturing Sector’s Response to Higher Electricity Prices: Evidence from State-Level Renewable Portfolio Standards”, NBER Working Paper 30502.

Von Graevenitz, K. and E. Rottner (2024), “Do Manufacturing Plants Respond to Exogenous Changes in Electricity Prices? Evidence From Administrative Micro-Data”, ZEW Discussion Paper No. 22-038.

Weyl, G. and M. Fabinger (2013), “Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition”, Journal of Political Economy, 121(3), 528-583.

Authors’ login