The indispensable role of energy import: Does its price really matter for German employment?

Abstract

Studying the interplay between energy imports and employment is paramount for attaining sustainable development in Germany. The research employs the time-varying parameters-vector autoregression-stochastic volatility (TVP-VAR-SV) methodology to capture the dynamic correlation between energy import price (EIP) and unemployment rate (UR) under the control of consumer price index (CPI), which is constantly evolving. In quantitative analyses, it is clear that EIP significantly and positively impacts UR, indicating that a surge in imported energy costs has adverse consequences for the German labour market, possibly leading to job cuts and a spike in unemployment. Conversely, UR has a notable negative impact on EIP, particularly in the short period, signifying that an elevated unemployment rate reduces demand for imported energy. Further, the favourable impact of EIP on CPI, coupled with CPI's detrimental effect on UR, underscores the pivotal importance of CPI as a critical control variable. Additionally, we reinforce the robustness of these conclusions through stringent testing that encompassed the introduction of a business cycle-related control variable, variations in the number of iterations and replacement of energy import price. Amidst the severe energy crisis, this study aims to offer crucial recommendations to Germany for securing its energy imports and stabilising the labour market.