Wildly variable oil prices
"The lay-off legacy," OGJ's June 19, 2000, editorial, incorrectly (in my view) identifies "wildly variable oil prices" as the key determinant of employment in the oil and gas industry. According to American Petroleum Institute Research Study #077, "Jobs and Payrolls in the Petroleum Industry" (February 1995), increases in wages were a more important determinant of falling employment than were decreases in petroleum prices, at least during 1981-93. It is unlikely that recent data would contradict this conclusion.
The fundamental problem is that American labor productivity, driven by technological advance, must rise far and fast enough to offset lower costs of oil production overseas. American oil companies must pay wages that are competitive with wages offered by American companies in other industries, but must also meet competition from foreign oil companies with lower costs. More fundamentally, American oil companies need more access to promising acreage to create jobs in oil and gas field services.
Higher oil and gas prices may raise upstream wages, but any gains in employment will tend to be small and/or temporary without continued technological progress and better land access.
Thomas F. Hogarty
Virginia Polytechnic Institute
Blacksburg, Va.
