That burst of employment generated by fracking in the past decade may not have been all good news for the U.S.
Jobs offering low-skilled American teenagers a chance to earn big bucks in the shale oil and gas industry also made it less attractive to finish high school, causing a jump in dropout rates, a new study showed. It was published this month by the National Bureau of Economic Research.
The sobering takeaway: fracking raises the risk that some workers at the bottom of the skills and education ladder may end up being stuck there, because they made bad schooling choices in a rush to be part of the industry, according to Elizabeth Cascio and Ayushi Narayan, the study's authors.
For every 0.1 percentage point rise in the oil and gas industry's local male employment rate due to fracking, the dropout rate of male teens climbed by around 0.3 to 0.35 percentage point, the study covering 2000 to 2013 showed. So that means this group took a step back compared to female teens.
"By increasing the relative demand for low-skilled labor, fracking thus has the potential to slow growth in educational attainment," Cascio and Narayan wrote. "Such a phenomenon would work against broader economic trends both at the local level - where incomes may be rising due to fracking, especially among families whose children are more at risk of dropping out - and nationally - where technological change in other industries continues to favor the highly educated."
The study found that in the absence of fracking, the male-female gap in high school dropout rates among 17- to 18-year-olds would have narrowed between 2000 and 2013. Instead, it was unchanged at 1.4 percentage points at the end of the period, with males posting a 5.4 percent dropout rate versus 4 percent for females.
Forgoing education can seem more attractive in two ways, the paper showed. First, by increasing the opportunity cost of remaining in high school (the teenager sees he could obtain a job in the oil fields right now) and second, by lifting expectations of a dropout’s lifetime earnings.
Indeed, in commuting zones with a relatively high reserve of shale oil and gas, the wages of teen males rose faster than their female counterparts or males who had higher education levels.
Yet the relative wage boosts may be only temporary. The study showed that by the end of the sample period, the benefits were waning even though the price of oil was still high,
There's no denying that the advent of fracking fueled a structural transformation from Pennsylvania to North Dakota, lifting local incomes and helping set the nation on a path toward energy independence, the authors said. Downsides such as the environmental consequences are well documented and debated. By showcasing the adverse fallout on the labor market, Cascio and Narayan's research has implications spanning education and skill levels, future productivity, the social safety net and wage inequality.
At a time when the energy industry is reeling under a price shock, the findings offer even more food for thought.