The resource curse: how dependence on oil and gas hurts communities in the long run

Two recent studies provide clear evidence of a well-understood fact: communities that base their economies on oil and gas may enjoy a short term boom, but they suffer in the long term in per capita income, educational attainment and crime rate.

Elizabeth Cascio

Elizabeth Cascio

Fracking boom increases high school dropout rate
The first study, by Elizabeth Cascio and Ayushi Narayan at Dartmouth University, is titled “Who needs a fracking education? The educational response to low-skill biased technological change” It documents that when a fracking boom hits a community,  high-paying low-skill jobs are created, mostly for young men. The result is that the dropout rate for 17 and 18 year old men increases significantly in those communities.

The study concludes that some students are hurting themselves in the long run by putting more weight on short-term higher income than the long-term benefits of education. As a result, those students wind up stuck at the bottom of the education and skills ladder, and their incomes will be reduced over the course of their lifetimes.

Wenlin Liu

Wenlin Liu

The impact of oil and gas on economic growth in Wyoming
The second study is a report by Wyoming state economist Wenlin Liu that shows the Wyoming economy is strong, except in counties that rely heavily on the oil and gas industry. The study looked at growth in different sectors from first quarter 2014 to first quarter 2015.

The report showed that every sector other than “mining,” which includes oil and gas, showed year over year growth, and that statewide unemployment has dropped to four percent. Personal income in the state grew 4.1% from year to year.

The mining sector showed a 2.4% loss of jobs, about 660 statewide.

“The simple reason was a dramatic decline in drilling rigs for oil and natural gas,” Liu told the Wyoming Tribune Eagle. “It’s not only oil prices, but natural gas prices too. And that’s directly affecting Wyoming’s economy.”

Counties that rely heavily on oil and gas saw large declines in taxable sales, with Niobrara County dropping 52.3%, Carbon County 14.7%, Sublette County 12.1% and Fremont County 9.6%.

“Hopefully these counties enjoyed the boom, and for budgeting purposes they don’t spend all their money when it booms,” Liu said.

By contrast, other counties with more diverse economies saw gains as high as 8.8%.

The long term impacts on communities
These studies should not come as a surprise. They are likely the first of many examples of the fallout from the decline in oil prices that began in June, 2014.

Six states

The study showed that in six states, including Montana, the longer the period of oil and gas exploration continues, the more negative the economic impact when it ends. You can see from the map that Carbon and Stillwater counties have primarily escaped these impacts, but we may not be so lucky during the next fracking boom.

The negative long-term impacts of increased reliance on oil and gas drilling are summarized in a study from the Headwaters Institute entitled   Oil and Gas Extraction as an Economic Development Strategy,” which looks at the longitudinal impacts of  drilling booms since the 1980s in six states, including Montana, from 1980 – 2011. The study was done at Montana State University.

The findings are stark. Counties that participated most heavily in the boom and specialized their economies most intensively in oil and gas saw greater declines in income, higher crime rates, and lower rates of educational attainment in the 1980 to 2011 period.

“The magnitude of this relationship is substantial,” the authors write, ” decreasing per capita income by as much as $7,000 for a county with high participation in the boom (greater than 8% of income from oil and gas) and long-term specialization (greater than 10 years) versus an identical county with only one year of specialization in oil and gas.”

This suggests that U.S. towns and counties that specialize too heavily in oil and gas development can indeed suffer from what’s known as the “resource curse.” They become too reliant on a single industry, and when the oil and gas stops flowing, the counties end up worse off than if they’d never enjoyed a surge of production in the first place:

  • For counties that experience increases in oil and gas production, per capita income declines with longer specialization.
  • The longer the duration of oil and gas specialization, the higher the crime rate.
  • Educational attainment declines with longer specialization.

We need to change the conversation
This data points clearly to the kind of local conversations we need to be having about oil and gas development. The lure of money flowing into a community is attractive — jobs, retail sales, rising home prices.

But for those who have an interest in maintaining the quality of life in a community for the long term — elected officials, families, local businesses — the conversation needs to go beyond the hell-bent pursuit of instant riches.

Communities cannot just allow development to occur based on the needs of oil and gas operators. The conversation needs to involve deciding how much, where, how quickly, with what limitations.

County Commissioners have this responsibility to lead this conversation through their power to set planning policies, through permitting and zoning. We need to insist that they do this. If not, citizens need to step forward to demand responsible policy making.

About davidjkatz

The Moses family has lived on the Stillwater River since 1974, when George and Lucile Moses retired and moved to the Beehive from the Twin Cities. They’re gone now, but their four daughters (pictured at left, on the Beehive) and their families continue to spend time there, and have grown to love the area. This blog started as an email chain to keep the family informed about the threat of increased fracking activity in the area, but the desire to inform and get involved led to the creation of this blog.
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3 Responses to The resource curse: how dependence on oil and gas hurts communities in the long run

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