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A Comparison of the Economic and Labor Market Impacts of Resource Extraction

 
Mallory C. Vachon
Assistant Professor – Research
Louisiana State University
Baton Rouge, LA
mcvachon@lsu.edu

 

Recently, many empirical studies in economics have focused on the local labor market and economic impacts of the shale boom. These papers generally find that the boom led to large increases in earnings in oil- and natural gas-rich areas. Such economic impacts include educational attainment, social insurance program benefits and participation, migration, and state and local public finances.[1]

As we continue to study the shale boom and more current data becomes available, given the recent, prolonged decrease in oil prices, it will be increasingly important to put recent events in context. Looking back to the events and local economic conditions of the 1970s and 1980s, particularly in resource-rich areas, allows for important spatiotemporal comparisons of the impact of natural resource shocks.

The focus of this article is to examine differences and similarities between the local economic landscapes of the Appalachian coal-producing region and the Bakken oil-producing region in North Dakota. In particular, I examine the local labor market conditions in each of the resource-rich regions to provide insights into the relative impacts of the different resource shocks that impacted the demand for labor. I use the Integrated Public Use Micro Samples of Census and American Community Survey (ACS) data to provide a comparative analysis of employment and industry trends across the two regions.

During the coal boom and bust of the 1970s and 1980s, the coal-producing Appalachian region, covering parts of Kentucky, Ohio, Pennsylvania, and West Virginia, was among the most profoundly impacted by changing economic conditions. Similarly, over the course of the shale boom from around 2005 through 2014, the increase in oil production from the Bakken formation, covering parts of Montana, North Dakota, and South Dakota, was perhaps the most significant, both in terms of local economic impact and the value of oil produced.

Comparing the earnings estimates for Black, Daniel, and Sanders (2002) and Vachon (2015a), it appears as though earnings growth was greater for all counties (both with- and without reserves) during the Appalachian boom as compared to the Bakken. However, earnings growth differentials between counties with and without reserves are more similar across booms (approximately 3.6% for the Appalachian as opposed to 2.6% for the Bakken).

Nevertheless, comparing the local economic impacts of these spatially and temporally different resource shocks requires knowledge of the underlying labor market conditions for the Appalachian and Bakken regions.[2]  From the coal boom of the 1970s to the bust of the late-1970s and 1980s, the Appalachian coal mining industry remained male-dominated, with males comprising over 95 percent of the industry, even in 1990. The male domination of coal mining contrasts the overall employment landscape in the region, where female employment share increased from around 37 percent in 1970 to 45 percent in 1990, mirroring employment trends nationwide. Like the coal mining industry in the Appalachian, the oil industry in North Dakota is also male-dominated, with males comprising approximately 90 percent of the workforce during the pre-boom (2000-2004) and boom (2005-2013) periods. In North Dakota, men make up 53 percent of the overall workforce.

The respective booms also had marked impacts on the age distribution of the industries. Between the 1970 and 1980 Censuses, the Appalachian coal mining industry became younger as it expanded. The number of workers younger than 25 increased from 10 percent to 16 percent between 1970 and 1980, while the number of workers 55 to 64 decreased from 17 percent to 9 percent, likely due to retirement (Black, Daniel, and Sanders, 2002). From the 1980 to the 1990 Censuses, there is evidence of aging within the mining industry, with fewer than 5 percent of workers under 25 years old. Similarly, the oil industry in North Dakota became younger between the pre-boom and boom periods. The share of workers younger than 25 increased from around 5 percent to 16 percent, and the share between 25 and 34 increased from 12 to 25 percent.

For the Appalachian region, Census data show that the coal mining industry employs many workers with very low levels of education. In 1990, around 30 percent of coal workers were without a high school diploma, compared with 18 percent for all workers in the region. In contrast, the education distribution for the Bakken oil industry is more nuanced. The ACS data show that workers in the oil industry have lower levels of education as compared to the state, but the share of workers without a high school education is comparable for the oil industry and North Dakota as a whole. Approximately half of all workers in the oil industry have just a high school diploma, as compared to 35 percent for the state as a whole. At the same time, the share of workers with a college degree or more is much lower in the oil industry, at 11 percent, as compared to 25 percent for all workers. The boom also appeared to increase the education level of the oil industry workforce, while the overall education distribution in the state remained largely unchanged. Between the pre-boom and boom periods, the share of workers with a high school degree or less decreased from around 66 percent to 55 percent and the share with some college or more increased from 35 percent to 44 percent.

This paper provides a comparison of labor market impacts of resource extraction for the Appalachian coal states of Kentucky, Ohio, Pennsylvania, and West Virginia as well as the Bakken oil-producing state of North Dakota. Overall, the evidence suggests that the two regions were similarly impacted by their respective booms. In addition, the characteristics of the overall workforce and extractive industry workforce are nearly equal over time for the two regions. These findings provide some suggestive evidence that valid comparisons can be made across the two regions.

  


References:

Acemoglu, D., A. Finkelstein, and M.J. Notowidigdo. 2013. “Income and Health Spending: Evidence from Oil Price Shocks.” The Review of Economics and Statistics 95 (4): 1079–95.

Allcott, H., and D. Keniston. 2014. “Dutch Disease or Agglomeration? The Local Economic Effects of Natural Resource Booms in Modern America.” NBER Working Paper 20508.

Black, D., K. Daniel, and S. Sanders. 2002. “The Impact of Economic Conditions on Participation in Disability Programs: Evidence from the Coal Boom and Bust.” American Economic Review 92 (1): 27–50.

Black, D., T. McKinnish, and S. Sanders. 2005. “The Economic Impact Of The Coal Boom And Bust.” The Economic Journal 115 (503): 449–76.

Carrington, W.J. 1996. “The Alaskan Labor Market during the Pipeline Era.” Journal of Political Economy 104 (1): 186–218.

Cascio, E.U., and A. Narayan. 2015. “Who Needs a Fracking Education? The Educational Response to Low-Skill Biased Technological Change.” NBER Working Paper 21359.

Ruggles, S., K. Genadek, R. Goeken, J. Grover, and M. Sobek. Integrated Public Use Microdata Series: Version 6.0 [Machine-readable database]. Minneapolis: University of Minnesota, 2015.

Vachon, M.C. 2015a. “Local Labor Market Conditions and the Federal Disability Insurance Program: New Evidence from the Bakken Oil Boom.” https://mcvachon.files.wordpress.com/2014/11/vachon_di_5-13-151.pdf

Vachon, M.C. 2015b. “The Impact of Local Labor Market Conditions on Migration: Evidence from the Bakken Oil Boom.” https://mcvachon.files.wordpress.com/2014/11/vachon-migration-9-25-151.pdf

Vachon, M.C. 2015c. “Oil Production and the Elasticity of the State Tax Base: Evidence from North Dakota.” https://mcvachon.files.wordpress.com/2014/11/vachon_tax_5-13-15.pdf

Weber, J. 2012. “The Effects of a Natural Gas Boom on Employment and Income in Colorado, Texas, and Wyoming.” Energy Economics 35 (5): 1580-88.


Notes:

[1] This growing literature includes but is not limited to works by Acemoglu, Finkelstein, and Notowidigdo (2013), Allcott and Keniston (2014), Black, Daniel, and Sanders (2002), Carrington (1996), Cascio and Narayan (2015), and Vachon (2015a, 2015b, and 2015c), and Weber (2012).

[2] I use North Dakota, here, to represent the three states impacted by Bakken oil production as it accounts for the largest share of oil production in the region (Vachon, 2015a).