What boom? Numbers don’t quite add up on employment claims - Shale Reporter : Industry

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What boom? Numbers don’t quite add up on employment claims

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Posted: Monday, May 6, 2013 9:26 am

Industry, legislators, geologists -- even the press -- called it a game-changer.

They predicted it would create hundreds of thousands -- even millions -- of jobs. They talked about energy independence, waves of new industry flocking to the area. But today, years into the Marcellus shale boom, the numbers tell a different story.

Pennsylvania’s unemployment rate is now higher than the national average.

The state lost 5,800 jobs last year, ranking 49th in the nation for job creation. The latest government data shows that Marcellus shale development brought about 6,362 jobs annually to the state, which accounts for less than 0.5 percent of the workforce.

If the out-of-state license plates on energy company trucks are any evidence, there's seems to be a good deal of imported labor working in the Marcellus shale region.

So where is the Marcellus shale boom?


According to Pennsylvania Department of Labor & Industry statistics, the state’s unemployment rate is now 7.9 percent -- more than the national average of 7.5 percent. There are 32 states with lower unemployment rates, data shows. This year’s state unemployment rate is also higher than last year’s 7.6 percent.

Pennsylvania also was one of only seven states with unemployment rate increases, the department said. And they also expect Pennsylvania’s rate to keep rising, predicting an unemployment rate of 8 percent by the second quarter of this year.

However, the state’s March unemployment rate (the most recent available) was slightly lower than February’s rate of 8.1 percent. Department of Labor and Industry officials said Friday that state unemployment rates for April would be released May 17.

Experts say that the Marcellus boom may not be as big as the talk that surrounds it.

“The Marcellus is an important new industry, and there’s certainly no question that is has, over the last several years, created employment in Pennsylvania,” said Mark Price, labor economist for the Keystone Research Center. “But it remains the fact that employment overall in that sector -- you’re talking about something that is less than 0.5 percent of the workforce … a tiny portion of all the jobs.”

Yet industry groups such as the Marcellus Shale Coalition continue to tout the industry’s job creation, citing numbers in the millions for new jobs created by shale.

“Employment in the entire upstream unconventional oil and gas sector on a direct, indirec and induced basis will support nearly 1.8 million jobs in 2012, 2.5 million jobs in 2015, 3 million jobs in 2020, and nearly 3.5 million jobs in 2035,” said Marcellus Shale Coalition spokesman Travis Windle.

When asked why the unemployment rate is rising despite natural gas development, Windle said that you can’t blame the unemployment rate on just one segment of the economy.

“While the natural gas industry continues to grow -- and its number of associated jobs will certainly ebb and flow over time -- other segments of the Pennsylvania’s economy, like the nation’s, continue to face headwinds,” he said. “So attempting to draw a connection to Pennsylvania’s unemployment rate exclusively to the performance of one industry is misguided, and fundamentally fails to account for the performance of a host of other industries, (such as) agricultural, health care, manufacturing.”

Louis D’Amico, president and executive director of the Pennsylvania Independent Oil and Gas Association, echoed Windle’s sentiment.

“It is a preposterous conclusion to assume that job creation statistics for the entire state rests on the back of a single industry,” he said. “Given that about 70 rigs are operating in Pennsylvania, construction work continues on pipelines and compressor stations to bring more natural gas to market and the workers are being paid significantly more than the average wage of about $45,000, it is fair to say that the industry is maintaining a very strong economic presence in the state and will continue to do so.”

D’Amico also said the low natural gas prices have affected the industry’s growth in the state.

“Stubbornly low commodity prices for natural gas, along with other factors, are having a short-term drag on the industry in Pennsylvania,” he said. “Finally, lagging job growth across all economic sectors in the state can be linked to other factors, starting with the fact that Pennsylvania has the highest corporate net income tax in the nation.”

Marcellus development is the reason the unemployment isn’t higher, Windle said.

“Pennsylvania’s unemployment rate would most obviously be much higher were it not for Marcellus development,” he said.


According to the Pennsylvania Department of Labor & Industry’s Marcellus shale-specific data from April, as of the third quarter of 2012, there were 245,054 employed as a result of Marcellus development -- but only 30,752 were directly employed within the Marcellus industry, or what the department calls the core industries.

The core industries, the department says, include crude petroleum and natural gas extraction, natural gas liquid extraction, drilling oil and gas wells, support activities for oil and gas operations, oil and gas pipeline and related structures and pipeline transportation of natural gas.

The rest -- more than 214,000 employees -- were employed by the ancillary industries, which includes  jobs with highway, street and bridge construction, environmental consulting services, petrochemical manufacturing, freight trucking services -- even iron and steel mill workers.

Windle still touts the importance of the nearly a quarter of a million Pennsylvanians who he says may not be employed if it weren’t for natural gas development.

“There are roughly a quarter of a million Pennsylvanians who may not be working (and paying taxes) today but for natural gas development,” he said. “This is a huge number by any measure, especially given the fact that the national economy is still growing at an anemic rate following one of the deepest and most protracted downturns in a generation.”

The same data shows that from the third quarter of 2009 to the third quarter of 2012, there were 19,087 jobs added to the core industries. So according to this data, jobs in the Marcellus core industries added about 6,362 jobs each year.


So where is the industry getting their numbers?

“(Groups like) the Marcellus Shale Coalition exists for a booster for the industry, creating a positive public presence and also advocating for industry and state legislators,” Price said. “When you see … estimates, especially when they come from an industry group like this one, they are often done in a way to help with the boosterism, not with an eye of what is going on -- more with an eye of we need to sell this industry.”

Price doesn’t buy the industry’s moniker of "game-changer" when it comes to Marcellus development.

“(Marcellus) is not ultimately going to be a driver in all economic activity in the state of Pennsylvania,” he said. “It’s not something that is going to radically change the course of Pa.’s economy.”

But he did say the Marcellus most helps areas with smaller populations and dwindling economies.

“It’s important, especially in places where there is drilling, especially if those places are small with a small population, and in particular if those places have been in decline,” he said. “All jobs matter -- and if you have a job in that sector, (such as) a truck driver, that’s important to you, that salary is important to you, good for the economy.”

Windle agreed, citing the fast growing economy of Williamsport, Pa., located in the midst of the Marcellus shale region, which was ranked the third-fastest growing metro economies by the Bureau of Economic Analysis for 2011.


Price pointed out that the industry’s numbers and the Department of Labor and Industry’s numbers also differ because they use different models to calculate them. The department, he said, uses a "jobs you can count" method, while industry groups tend to use an input/output method.

“A lot of the industry estimates that you see thrown around come from input/output models, where an economist has been hired to take numbers, run through a model, make a lot of assumptions and trace out how big the industry is,” he said.

He also said that even the core industries jobs calculated by the Department of Labor & Industry are really just their “best educated guess about what’s there.”

“There’s no way in this data to know for sure whether the jobs are actually related to Marcellus,” he said. “Good sense tells you that the core jobs are more than likely (related to Marcellus) only because we think nothing else is going on. The trouble you have with models is they are models -- they aren’t necessarily reality, they are an economist’s best guess.”

He also doesn’t put much stock in the jobs created by what the Department of Industry and Labor calls ancillary industries, which accounts for more than 214,000 of more than 245,000 jobs some say the Marcellus has created.

“I have no confidence that the ancillary industries are capturing anything,” he said.

Even then, Price gives credit where credit is due -- namely, the 20,000 jobs that can most likely be attributed to the core Marcellus industries.

“(Marcellus development) is definitely creating jobs,” he said. “Twenty thousand jobs is a lot of jobs. I wish it was more. It’s creating opportunities, it’s creating employment and we should recognize that. But absolutely we shouldn’t overstate it.”

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