Why an Oil Boom is Sometimes Bad for Business

Feb 18, 2014
A pump-jack in an Oklahoma field.

Sarah&Boston / Flickr

A pump-jack in an Oklahoma field.

The shale gas drilling boom has been a blessing to energy states like Oklahoma, which has low unemployment and an economy that, thanks in part to oil and gas production, was insulated from the worst effects of the Great Recession.

Energy companies are often enviable employers, and drilling has increased labor competition and helped fuel wage increases in Oklahoma and eight other oil and gas states, according to a report (click here for the .pdf) by economist Jason Brown of the Federal Reserve Bank of Kansas City.

But as the Journal Record‘s Sarah Terry-Cobo reports, these booms “can create pressure among other employers”:

Economists often refer to the phenomenon called the resource curse, in which other industries suffer because of one industry’s labor demand and higher wages. Higher wages can also create higher prices for goods and services. Brown studied wages, population and county-level employment in rural areas in Arkansas, Colorado, Kansas, Louisiana, Nebraska, New Mexico, Oklahoma, Texas and Wyoming.

He found that increased shale gas production in the nine-state region had a modest effect on local wages and employment rates from 2001 to 2011.

“This is likely due in part to the ability of labor and people to move from county to county and the small share of manufacturing in the local economy,” Brown wrote.

The local Dairy Queen in Woodward, for example, had to start offering a $200 signing bonus to attract entry-level workers, Terry-Cobo reports. Even that deal wasn’t sweet enough:

In general, starting wages vary from $7.75 to $9 per hour, he said. Dependable employees who stay can earn up to $12 per hour. In addition, Vassar said, he aims to treat his employees like family members, offering a little bit of bonus when he can in an effort to stay competitive and keep good workers.

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