Energy development is big business. Oil and gas companies, electric utilities and wind and solar power developers have been pouring many billions of dollars into energy infrastructure. Virtually all energy development, whether fossil or renewable, involves heavy industry. There will be economic benefits and economic costs to any particular project. Some economic impacts of Marcellus Shale development are certainly positive, such as lower energy costs. Others are certainly negative, including impacts on existing infrastructure (like roads, bridges and public utilities) and housing costs. We discussed some of these benefits and costs, and in particular the confusing process of determining “job creation” in the energy sector. The article Will Keystone XL pipeline create 42,000 'new' jobs?, provided an example of two very different numbers for new job claims that would be created by Keystone XL. The reason for the confusion comes down to just a few key facts about measuring (and reporting) the workforce implications for energy project development.
- The total size of the workforce needed to sustain a given level of energy development extends far beyond the people that actually drill wells, lay pipeline or erect wind farms. Part of the disagreement over the Keystone XL and other big energy projects comes down to using different definitions (direct, indirect, induced) of what constitutes the ‘workforce’ and which jobs in which industries are counted.
- The number of people required to build a large energy project like a gas well or a pipeline is very different than the number of people required to run the project once it is complete. Some jobs may be temporary contract employment while others are more like permanent positions.
- Creating a job is not the same thing as reducing unemployment, since workers may shift from one job to another. While we often talk casually about the number of jobs that a given energy project will create, it is more correct to refer to the size of the workforce needed to develop and sustain a given energy project.
Input-output models can be used to estimate both direct, indirect and induced workforce impacts because the databases collected by the government include data on consumer spending and saving. Currently, input-output models are the best tools that economists have for estimating workforce impacts associated with any industrial activity, not just in the energy industry. However, there are caveats to keep in mind regarding the input-output model:
- Input-output models capture the flow of dollars through the economy at a snapshot in time.
- Input-output modeling can’t differentiate between short-term and long-term workforce needs.
- Input-output models themselves cannot capture where workers or money come from, only that they exist.
- Rapid expansion of natural gas drilling in an area may induce new growth in industries with high demand for natural gas. But if these industries did not exist in a region prior to natural gas drilling, or were not very large, then input-output models cannot capture the growth and scale-up that might occur. On the other hand, it is true that if the growth of natural gas drilling caused other industries to shrink or disappear altogether, then this economic contraction would not be reflected in an input-output model.