Commodity Price Shocks and the Quantity and Quality of Employment in a Fully Dollarised Economy: Evidence from Ecuador, 2010–2025

Abstract

Between 2022 and 2025, Ecuador’s non-oil exports reached record levels while formal employment stayed near its historical low. Using quarterly data, we estimate the dynamic effect of oil and non-oil export shocks on the quantity and quality of employment with local-projection instrumental-variable methods, instrumenting each export block with world commodity prices. Both blocks are associated with a higher formal-employment share, but they differ in kind. For oil, the result is robust, surviving alternative control sets, sub-samples, re-sampling and a familywise correction across the outcome menu. For non-oil, it is suggestive: the first stage is weak and weak-instrument-robust regions are unbounded at every horizon, so the estimates speak to the direction and not to its size. Neither block raises total employment. Using household microdata on stated reasons for inactivity, we trace the oil-driven formalisation to a labour-supply response to higher household income rather than to hiring: the formal-employment share rises because informal employment contracts, not because formal employment expands. A five-candidate exercise localises the effect in no single fiscal instrument, indicating a diffuse income channel, where neither the interest rate nor the exchange rate is under domestic policy control. Export promotion and public spending are at most indirect routes to formal employment.