Study: Energy jobs extrasensitive to oil-price changes

Oct. 11, 2014
As oil prices fall, speculation naturally arises about winners and losers in the event a decline of the moment becomes something more severe.

As oil prices fall, speculation naturally arises about winners and losers in the event a decline of the moment becomes something more severe.

It’s easy to declare consumers winners and producers losers when prices plunge. It’s much more useful but more difficult to assess finer points of vulnerability.

A new study published by the Council on Foreign Relations compares vulnerabilities of US states to oil-price shocks, upward and downward. It’s by Stephen P.A. Brown, an economics professor and director of the Center for Business and Economic Research at the University of Nevada, Las Vegas, and Mine K. Yucel, senior vice-president and director of research at the Federal Reserve Bank of Dallas.

The study reaches the unsurprising conclusion that a 25% increase in the price of crude oil would lower employment in 42 states and the District of Colombia and raise employment in seven oil-producing states and West Virginia for a net US loss of 0.43%.

A comparable price slump would, of course, have reverse effects. The largest employment-loss percentages among the oil-producing states would be those of Wyoming, Oklahoma, and North Dakota.

The study bases its projections about state vulnerabilities on calculated employment sensitivities applied in an analytical framework accounting for the composition of each state’s economy, quantitative differences in multiplier effects across states, and responses of fossil-fuel industries to changes in oil prices.

Based on 2000-11 data, the authors estimate that a 10% increase in the price of oil would lower employment by 0.2% in the total US economy and by 0.03% in refining. It would raise employment by 0.24% in coal mining, 0.40% in oil and gas extraction, 0.29% in oil-field machinery, and 0.36% in petrochemicals.

Anyone in the oil and gas business old enough to have experienced the career dramas of past price cycles will notice the reactivity implied by these numbers.

As Brown and Yucel describe it: “The fossil-fuel industries are considerably more responsive to oil price movements than employment in the overall economy.”

(From the subscription area of www.ogj.com, posted Oct. 11, 2014; author’s e-mail: [email protected])