through costs to consumers in inelastic markets (Aldy & Pizer, 2015; Pindyck, 1981). Simultaneously, cost increases might also lead to labor reductions, especially in energy-intensive sectors (Caves et al., 1982).

For increases in electricity prices, we observe a negative effect on labor productivity in contrast to the positive effect observed for oil prices. Unlike global oil prices, electricity prices are country-specific and reflect the average commercial electricity rates by country, allowing for better identification. The negative association between electricity prices and labor productivity may be due to rising electricity prices increasing operating costs and reducing competitiveness, leading to a drop in sales, especially in energyintensive sectors (Aldy & Pizer, 2015). Similarly, firms may cut production to manage costs in competitive markets, hindering output and profitability (Pindyck, 1981; Caves et al., 1982).

negative effect. Petroleum and electricity subsidies can lower firm employment by encouraging capitalintensive production methods over labor-intensive ones. By reducing energy costs, subsidies incentivize firms to adopt automation and energy-efficient technologies, which reduces the need for workers. This shift towards automation is particularly evident in energy-intensive industries, where subsidies encourage investment in machinery instead of hiring labor (IMF, 2013). Additionally, subsidies can distort market signals, hindering the reallocation of resources to more labor-intensive sectors. As noted by the World Bank, these subsidies can lead to inefficiencies, promoting industries that rely more on capital than on labor, thus reducing overall employment opportunities (World Bank Group, 2024).

and productivity. Electricity subsidies can enhance firm sales and productivity by lowering operational costs, allowing firms to invest in energy-efficient technologies and increase production. This reduction in energy costs enables firms to allocate resources more effectively, boosting output (Stern, 2013). In contrast, petroleum subsidies often support capital-intensive industries, distorting market signals and hindering resource reallocation (IMF, 2013). As a result, while electricity subsidies promote efficiency, petroleum subsidies may not have the same effect on firm performance (Aldy & Pizer, 2015).

# **_Introducing interactions of energy prices and energy dependence_**

<mark>Next, we introduce the double interacton of country-level electricity prices with industry-specifc energy dependence (intensity) which helps us identfy a more causal relatonship than the estmated associatons presented in Table 1. This is because we assume that country-level electricity prices are exogenous relatve to frm-level performance and so is the industry-level energy-intensity measure (CPRS classifcaton) based on global experience.</mark> The results of double interactions reported in Table 2 clarify the final effect of energy prices on firm performance. They reveal that increases in electricity and oil prices are associated with increased sales and productivity of firms in energy-intensive sectors. This finding is consistent with the earlier hypothesis, based on the results in Table 1, that increasing oil prices can raise labor productivity. Firms may increase sales while reducing employment after oil price hikes by adopting energy-efficient technologies that lead to productivity gains and by passing-through costs to consumers in inelastic markets <mark>while reducing employment in energy-intensive sectors due to cost pressures</mark> (Aldy & Pizer, 2015; Caves et al., 1982; Pindyck, 1981). <mark>In sum, our estmaton results reveal a notable decline in employment across frms due to increasing electricity prices. This negatve employment response is partcularly accentuated in frms categorized as energy-intensive according to the CPRS classifcaton and could be even more pronounced</mark> 9