Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

America's roughnecks are caught on the front line of the price war raging in the global oil market. Fridays jobs report confirmed some more casualties. 

Since peaking at about 536,000 in September 2014, the number of U.S. workers classified by the Bureau of Labor Statistics as working for "oil and gas extraction" firms or the companies that support them had dropped by February to about 417,000. Data for the support workers lags that for those who work directly for oil and gas companies. Based on the broader decline in what the BLS calls the mining-support sector, though, the upstream oil industry is probably down to less than 410,000 by now.

Besides the pain for all involved, these losses raise an important question: If an oil price rally gets going, will the U.S. shale industry be able to ramp up production quickly again? After all, when people get fired, they may well move away or get another job.

Delve into the jobs data, though, and it isn't so clear that finding workers will be the big issue.

While around a fifth of the sector's workforce has been let go since the peak, the number of rigs in operation in the U.S. has plummeted by two-thirds. 

Unsteady Job
U.S. oil-and-gas-sector payrolls and rigs in operation, indexed
Source: Bureau of Labor Statistics, Bloomberg
Note: Data through Feb. 2016.

You can see that the rig count has always been a lot more volatile than head count. In the past couple of big oil downturns, in the late 1990s and in 2008, the industry's payrolls fell by about 15 to 20 percent versus much sharper drops in the rig count. On that basis, the current decline is, so far, a bit deeper but still broadly comparable.

One thing that sets this downturn apart is time. The drop in rigs that took hold in 2008 lasted only nine months before bottoming out; the one in the late 1990s took 16 months. We are already 18 months into the current slump. If anything, given the severity of this downturn, head count looks surprisingly resilient.

For one thing, more than 8 out of every 10 firings have been on the support side -- the rig workers, drill operators and supervisors out in the field. They are generally paid less than the petroleum engineers, geoscientists and others classified by the BLS as oil and gas extraction workers. The latter have been largely retained, according to payrolls data.

Faltering Support
U.S. oil-and-gas-industry payrolls by type
Source: Bureau of Labor Statistics
Note: Data are through Feb. 2016.

Moreover, the core extraction workers have seen their average hourly earnings rise, despite the downturn. Pay for support staff has fallen, as you might expect, although the hourly rate hasn't fallen by much.

Pay Disparity
Average hourly earnings for oil-and-gas-sector workers by type
Source: Bureau of Labor Statistics
Note: Data are through Feb. 2016.

One reason employers can do this, especially on the core extraction side, is higher productivity. As an industry weighed down by debt focuses on maximizing output as efficiently as possible, oil and gas production per employee has spiked back to levels last seen more than a decade ago.

Doing More With Less
Implied output of oil and gas per worker per month
Source: Bureau of Labor Statistics, Energy Information Administration, Bloomberg Gadfly analysis
Note: Assumes 1 percent growth in daily U.S. natural gas output in Feb. 2016

So while some of the labor let go may have moved on already, it doesn't seem likely that a labor shortage will prove a huge impediment to stabilizing and raising production relatively soon if prices keep rising. Perhaps 40,000 of those fired, roughly a third, have lost their jobs only in the past four months and might easily be persuaded to return.

But the longer the downturn goes on, the harder this gets.

Productivity gains cannot spike forever, and even the herculean efforts to date can't fully offset the commodities slump.

Using data from the BLS for average hours worked and pay, it is possible to calculate a very rough monthly wage bill for the industry. Meanwhile, multiplying monthly production numbers from the Energy Information Administration by the benchmark West Texas Intermediate oil and Henry Hub natural gas prices provides a crude measure of revenue (different regions of the U.S. get different pricing, so this is simplified). The resulting chart of wages as a percentage of oil and gas industry revenue is, of course, only illustrative -- but the true picture isn't likely to be much prettier:

Making Payroll
Implied wages as a percentage of revenue from oil and gas production
Source: Bureau of Labor Statistics, Energy Information Administration, Bloomberg, Bloomberg Gadfly analysis
Note: Data are through Feb. 2016.

The recent rally in oil has provided some relief to the industry, but that may be faltering already (especially if Saudi Arabia's latest comments on the supposed supply freeze are anything to go by.) More ominously, a brief burst of exploration and production companies raising fresh funds by selling more shares has dried to a trickle since early March. While workers may be persuaded to pick up tools again when the time comes, there is no guarantee the capital backing the tools will flow back as quickly.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in San Francisco at

To contact the editor responsible for this story:
Mark Gongloff at