Spencer England has a post over at Angry Bear about the recent surge in oil and gas jobs in which he argues that the effect on the economy is minimal. He acknowledges that indeed a lot of jobs have been created in the industry:
I regularly see right wingers and republicans claiming that we should allow unlimited oil and gas drilling because it would create so many jobs.
If you look at the recent data on growth in employment in oil & gas drilling it appears they may have a good argument. Over the past year employment in oil & gas drilling rose 11.3%, only down slightly from its January peak of 14.5%. Employment growth in the sector almost reached its 1980 peak growth rate of 16.5 %.
As Mr. England then explains, the effect on total employment and the economy is quite small:
Currently, oil & gas exploration employment is some 0.15% of total payroll employment. That is correct, zero point fifteen percent, not fifteen percent. Under the assumed sluggish growth scenaro
oil & gas employment would reach a new record share of 0.32%f of payroll employment in 2020.. The some 289,000 increase in oil & gas extraction employment would account for about 1.6% of the total employment gains.It is like last years record real GDP growth in North Dakota. Because of the oil boom in 2011 real GDP
grew 7.5% in North Dakota, far stronger than any state. This very rapid growth caused North Dakota’s share of total US real GDP to rise from 0.24% to 0.26%So even if you allow them to have their extremely optimistic assumptions, unlimited oil & gas extraction is unlikely to have a significant impact on total employment growth.
He also adds this for perspective:
To put this in perspective, assume continued sluggish economic growth of some 2% to 3% real GDP growth and annual employment growth of around 1.6%. . By 2020 this would bring the unemployment rate under 5%.
I’m no Republican or right winger and I don’t believe we should allow unlimited oil and gas drilling (although I do think we could do more) but I just don’t get the logic of this argument. Is Mr. England saying that growing at below trend rates until 2020 is acceptable? Or is he saying that is the best we can expect regardless of how may oil and gas wells we drill? Does Mr. England believe we shouldn’t have allowed the drilling that has already occurred? Are the jobs created so few that he can just wave them away as insignificant? I bet the people who have those jobs don’t see them as insignificant.
And how exactly did he determine that this growth rate would produce employment growth of 1.6% and an unemployment rate of 5%? Does he know what population growth will be in that time? Does he know what the participation rate will be? Republicans may be pulling numbers out of their nether regions when predicting job growth based on more liberal drilling policies but so is Mr. England. What if his wild ass guess is wrong? Would these jobs be important then?
I am on record as saying that a lot of the shale drilling activity is a result of nothing more than money illusion and that just like the last time this happened it will end up wasting a lot of capital. But I am humble enough to admit that I might be wrong about that. If I am, these are good jobs, filled by real people with real lives. We shouldn’t minimize them or dismiss them as irrelevant. An economy is made up of lots of small pieces that interconnect in ways that are impossible to fathom by any individual. The first jobs created at Amazon or Apple or Intel were irrelevant to the economy at the time. There is no way to know the effect on the future of even one job being created today. What if someone gets a job driving a truck in North Dakota because of the oil boom, saves his money, uses the savings to go to college to get an engineering degree, invents a process that reduces the cost of solar power and founds a company that creates 100,000 jobs making solar panels? Would Mr. England still say that the oil and gas drilling jobs created now are irrelevant?
John L. Chapman
June 15, 2012 at 6:45 amJoe that is a great post and your last paragraph really makes the seminal point in this discussion: it is an example of “fatal conceit” to claim to know which jobs or sectors will lead to which new exponential-growth industries of tomorrow…. and your example IS precisely how it happens.
In eastern Ohio, thanks to the Utica shale exploration, a moribund region has been at least somewhat visibly revivified. There are new BMW dealerships in small towns south of Cleveland and west of Pittsburgh, towns that have seen their populations halved since 1960 and the demise of the automotive ecosystem and a few million jobs in tens of thousands of small companies in the region that fed Detroit. The job growth in such a phenomenon gets distorted (if not lost) in the macro roll-up job estimating the government tries to do, because of all the helter skelter of creative destruction in jobs (viz., people do not understand that in the 50 million new jobs created since 1970, the real way to say it is 430 million jobs were created and 380 million were destroyed), and the inability to neatly count jobs in a given sector.
So maybe there are only 10,000 “new” jobs in the region so far, plus likely another 5 or ten that do not get counted due to job-switching — often and albeit from jobs that would have been lost and led to unemployment increases. Still, the ancillary spill-over effects have led to other spending and investment (and consumption increases) that has totalled several hundred million in net new GDP for the region.
It is the height of arrogance to sniff that such things at a micro level “only” move employment from “.24% to .26%” of the total (as much as it is arrogant to assume that those are the right numbers since the government says they are), and hence can be regulated to prevent such growth. It is a mentality of “private sector job growth is so meager it does not count”, and it leads directly to a mindset of “we need massive government-led investment” since “everybody knows” that only government can act on the “big scale” we need now, to make a true dent in our problems. This is if course a very unfortunate distortion of how an economy really grows, and it is based on an illogical implicit comparison between any one isolated private sector story of growth in an industry sector to government-led “stimulus” spending.
Lastly, to your point about possible to likely malinvestment in such areas as the Utica shale formation: you may well be right, and surely would be if oil goes back to $33. But I am not too worried about this, because the last time oil was at $33 or even below $50, the Feb balance sheet was $2 trillion smaller. I do not think that will get whittled down for a long time — which is to say, never, prior to eventual collapse — and as a result there is a new floor on the most traded commodities in dollar terms.
But even if a lot of this splurge in energy exploration and extraction turns out to be malinvestment, we surely cannot know that now.