Energy Jobs: Fueling the Overall Economy
Jobs in the oil and gas industry have a far greater impact on the overall economy than most jobs in other industries, according to economists. In locations where the oil and gas sector is one of the prevailing local industries, an energy industry boom can be instrumental in halting, and even reversing, a localized economic downturn. The reason, some economists say, is that the creation of every new energy job prompts hiring both within and outside the industry.
The Multiplier Effect
A principle way in which energy sector jobs underpin the general economy is through the multiplier effect. The multiplier effect of an industry is the total number of jobs created within and outside of the industry when it adds a new job. Once considered an arcane construct used primarily by economists in academia, the multiplier effect moved to the front page of business news outlets in recent years as a way of explaining the importance to the overall economy of new jobs in certain industries, including the energy industry, according to economist Karr Ingham, owner of Ingham Economic Reporting, an economic analysis and research firm specializing in the indexing and tracking of regional and Houston metro-area economies. Ingham created the Texas Petro Index a decade ago for the Texas Alliance of Energy Producers, and conducts various industry-related economic impact studies in Texas and Oklahoma.
The importance of the energy sector multiplier on local economies has been put into sharp focus in recent years as the
country began to emerge from the 2008 economic recession. To put into perspective the effect of the industry on the general economy, non-farm employment in the United States was nearly 3.25 million jobs below the January 2008 figure as of February 2014, according to the American Enterprise Institute (AEI). However, during the same time period, new oil and gas jobs increased by more than 26 percent.
Because of the multiplier effect, hiring at energy companies boosted job creation at support companies providing goods and services to energy companies, and at a wide variety of companies outside of the energy sector. With energy sector hiring doing the heavy lifting, the overall economy in oil and gas states began pulling out of the recession ahead of the rest of the nation, Ingham said.
There are two reasons why a job in the energy sector has a higher multiplier effect than jobs in most other industries. One is that energy industry jobs pay higher wages than jobs in many other industries, and the average salary of a given industry is linked to the size of that industry’s multiplier effect, according to Ingham.
The second reason is that the energy industry generates a significant demand for goods and services that are filled by a large number of suppliers in the supply chain, such as oilfield service companies. As the number of energy industry workers expands, so does the number of workers for energy industry suppliers.
How Large Is The Energy Industry Multiplier?
While the numbers that economists come up with to capture the multiplier effect of the oil and gas sector can vary over time and location, and even by reporting entity, they generally are significantly larger than the multiplier effects associated with most other industries.
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