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Lost Oil Jobs Are a Drag

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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The U.S. economy added 151,000 jobs in January, according to today's nonfarm payrolls report. If it hadn't been for the danged oil bust it would have been maybe 180,000.

That's a guesstimate. There's no January data available yet for several of the oil-related employment categories, so I assumed that industry job losses continued at December's pace. Then I used a rough multiplier to get at the impact of oil-and-gas job losses on other industries.

Here's the non-guesstimate of employment from 2000 through 2015 in four key oil-and-gas-extraction-related industries :

Thanks to the production boom enabled by hydraulic fracturing (aka fracking) and horizontal drilling, the industry added about 400,000 jobs from 2004 through 2014 in what was overall a pretty weak job market. Some of those were very good jobs: Average hourly pay in oil and gas extraction in December was $42.72, compared with $25.27 for the private sector in general. (Hourly pay in support activities and pipeline construction was lower, at $27.30 and $29.78, respectively; earnings data isn't available for oil-and-gas machinery manufacturing.)

Then there's the multiplier effect -- new jobs in oil and gas extraction lead to the creation of other jobs in construction, retail, restaurants and other fields. There's been a lot of discussion and debate about what the correct multiplier is. People in the industry say it's four or more, but I found other estimates nearer to three -- meaning that two additional jobs are created for each new job in the industry.

I'll go with three, because I'm the skeptical sort. Here are the estimated job gains from oil and gas extraction (the actual gains in the four categories above plus the multiplier gains) and overall job gains from when nonfarm employment started growing after the recession in March 2010 to when oil and gas employment stopped growing in October 2014.

And here are the estimated oil-and-gas employment losses and nonfarm employment gains since oil and gas started shedding jobs in November 2014:

This is not exactly a scientific exercise. The multiplier job gains and losses wouldn't necessarily occur simultaneously with the oil-and-gas gains and losses; they'd probably come later. And the economic effects of an oil-and-gas-industry slowdown caused by falling prices are very different from the effects of one caused by wells running dry. In the former case, as I have argued before, most of the rest of the economy benefits from the very thing -- low prices -- that is hurting oil-and-gas producers.

Still, the charts at least give a rough sense of the jobs impact of the oil-and-gas boom and bust. In the early months of the recovery in 2010, the industry appears to have played a significant role in keeping the economy going. Through September 2010 it had accounted for 17 percent of the cumulative job gains (that's including the multiplier) since overall employment began growing in March of that year; through July 2011 that share was still 15 percent. Since then, though, its impact has been much more modest on both the upside and the downside.

It could be that the oil-and-gas industry's troubles will affect the economy in some other way. Oil-and-gas producers sold lots of high-yield bonds to finance their drilling, and there are those who worry that a wave of bond defaults could bring a credit crunch. And of course oil-and-gas employment is extremely important to some local economies. On a national scale, though, oil-and-gas employment looks like it's big enough to matter, but not big enough to determine the economy's fate.

  1. Downstream oil-and-gas related sectors such as petroleum refining, petrochemicals manufacturing and gas stations don't necessarily shed jobs when oil prices are low -- and have actually added jobs over the past year -- so they're not really part of this equation.

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

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