Do America’s Future Jobs Lie in Traditional Energy?

Joel Kotkin has a provocative essay in Forbes that claims to show how booming extractive industries, led by oil and gas, have been cranking out massive numbers of high paying jobs over the past five years (hat tip: Walter Mead). He reports that employment in “mining, quarrying, and oil and gas extraction” has increased by 545,386 jobs from 2006 to 2011, and that average annual earnings in that sector is $101,486. He also flags spillovers to manufacturing, both of inputs (e.g. steel for well construction) and of products that require lots of cheap energy to make.

There’s no doubt that “brown energy” has been a rare bright spot on the employment landscape. Alas, Kotkin’s numbers appear to be way off. Moreover, even if they were right, his conclusion that “America’s Future Job Growth Lies In Traditional Energy Industries” doesn’t hold up.

Let’s start by taking a look at the total jobs numbers. Kotkin uses data from EMSI that corrects for the fact that standard Department of Labor employment figures don’t include non-payroll employees. This involves, among other things, including every person who files a 1099 for income derived from the industry. Work a couple days in a month for an oil company? Collect royalties in exchange for leasing your land? You’re an employee. For that reason, EMSI warns that “EMSI ‘noncovered’ data (i.e., data on 1099 workers plus more traditional state data, etc.) for oil and gas jobs should be treated with caution”.

That caution appears to be appropriate. Take a look at the BLS Current Population Survey statistics, which are based on household surveys and thus include contract work. They report 886,000 jobs in the sector as of August 2011, of which about 80,000 aren’t on payrolls. This total figure is up from 731,000 in 2010 and 687,000 in 2006, for a still impressive but somewhat less eye-popping gain of about 199,000 jobs.

How about annual earnings? This one is trickier to sort out, in part because it’s not clear how Kotkin derives his number, and in part because some of the data out there are inconsistent. BLS data for payroll employees show average annual wages of about $66,000, better than the economy as a whole but not $101,000 either. (That number is based on 45 hours a week of work at an average hourly wage of $28.) Squaring that with the $101,000 figure is difficult. Wage and non-wage employees might receive different compensastion, non-wage compensation to executives might be significant, and royalty income is clearly not included in the smaller number. It’s hard to see, though, how these could close a 31 billion dollar gap.

Kotkin contrasts the brown jobs "boom" with the green jobs picture. “How about those ‘green jobs’ so widely touted as the way to recover the lost blue-collar positions from the recession”, he asks? “Since 2006, the critical waste management and remediation sector – a critical portion of the ‘green’ economy – actually lost over 480,000 jobs, 4% of its total employment.” That’s nonsense. The figure Kotkin cites is actually for “Administrative and Support and Waste Management and Remediation”. When you narrow the lens to “waste management and remediation”, you actually find an increase of about 27,000 jobs. Not that waste management is the future of the economy or anything, but still, accuracy is nice.

There’s a stronger story to be told on the manufacturing side of the picture. The fact that a new steel mill is opening in Youngstown, Ohio (thanks to Reihan Salam for flagging this yesterday), is indeed striking. On the one hand, it’s hard to see how these sorts of projects add up to much on a national scale, if only because things like steelmaking have become enormously labor efficient (the new mill will employ 400); on the other hand, the geography of job creation has real social consequences, so it’s good to see positive trends in otherwise depressed parts of the country. It’s also important to observe that this isn’t just a “brown jobs” phenomenon: shuttered steel plants are being revived to produce things like wind turbines. Indeed, given the massive amounts of steel required for wind energy (that’s part of why it’s so expensive), I wouldn’t be surprised if it was a bigger customer for these inputs. Perhaps more important is the potential for cheap gas as a fuel source for a manufacturing renaissance in depressed parts of the country. Figures on this are tough to come by, but a lot of smart people seem to think that there’s something there; this is an area where some new analysis would be great.

Ultimately, though, a sense of scale is essential. This blog shared some back of the envelope numbers a couple weeks ago that suggested that a massive extractives boom might at best add about 0.2% directly to national GDP growth, barring very big increases in the price of oil and other mined commodities. That’s not the sort of thing that makes a decisive difference to employment. Potentially more important is the possible impact on oil prices (in tandem with steadily more aggressive fuel economy standards), though again, it’s difficult to paint a picture where U.S. actions yield overwhelming change. Bright spots are always welcome where people are struggling, but it’s dangerous to extrapolate them to a point that yields false hope.