Marcellus Shale, Unemployment and Industrial Diversity

Capitolwire has a recent story (paywall) about the impact of the Marcellus Shale on Pennsylvania's unemployment rate. There is no question that oil and gas extraction is creating jobs in Pennsylvania and thus helping reduce unemployment. But it remains an open question precisely how big the impact is given how small employment in that sector is relative to an economy that employs 5.8 million people.

Table 1 below lists the 25 counties that experienced an increase in the number of Marcellus wells drilled between 2009 and 2010. For each county, I also report the change in the number of unemployed workers in that same period as well as the change in employment overall and within key sectors of the economy. It is clear from this data that the biggest impact of Marcellus activity is being felt in Bradford, Tioga, Lycoming and Susquehanna counties.

Listed in Table 2 is the share of employment that Natural Resources and Mining, Construction and Manufacturing represent of total nonfarm employment in these same 25 counties. On average in 2010, Natural Resources and Mining represented 3% of total employment in these counties, construction 4% and manufacturing 16%. Manufacturing in most of these counties is far and away the most important sector.

The emergence of Marcellus Shale gas drilling is a positive to the extent that it diversifies these economies, but it also poses an important challenge — shale gas is a finite resource. When the supply of natural gas is exhausted, will employment in the region simply shrink or will new employers in new sectors emerge to provide good jobs and high wages?

Don't get me wrong: this is a very good challenge to have! But it is not a challenge to just shrug your shoulders at. Leaders in these regions need to make sure that resources are invested in education and training as well as made available to entrepreneurs.

There is always a danger that Marcellus Shale extraction may crowd out rather than seed new industries. Policymakers in Harrisburg and elected officials in these regions should make efforts to ensure that some of the good economic fortune represented by Marcellus Shale gas is reinvested in the seed corn necessary to increase the economic diversity of these communities. A drilling tax is the most sensible way to generate the funds needed to pay for these investments.


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