As economic and budget challenges continue to mount in states across the West, some legislators are calling for greatly intensifying energy drilling and mining as a means to return to the days of past prosperity. Energy work can bring good jobs and other benefits to communities, and recent research shows that relying on fossil fuel extraction may not be an effective economic development strategy for counties competing in today's growing and more diverse Western economy.
A study completed late last year by Headwaters Economics looked at the consequences for Western counties that have focused on energy production with a relatively high proportion of total jobs (7 percent or more) involved in the extraction of oil, natural gas or coal. Our analysis found that 26 of 414 Western counties, or 6 percent, are focused on fossil fuel production and that these counties are underperforming economically compared to peer counties with little or no energy extraction (www.headwaterseconomics.org/energy).
First, over the long run, the economies of counties focused on fossil fuel development grow more slowly than the economies of other counties. Counties focused on energy extraction as an economic development strategy have historically gone through periods of boom and bust. What is less well understood is how these counties fare economically in the long term. From 1990 to 2005, for example, the average rate of growth of real personal income in energy counties was 2.3 percent per year, compared with 2.9 percent in the peers. In terms of employment, the average annual growth of energy counties over the same time period was 1.8 percent, compared to 2.3 percent for their peers.
Second, we found that an energy development surge no longer guarantees strong economic performance. In the energy boom that began in the 1970s and ended in the early 1980s, counties that were focused on energy development were some of the top economic performers in the West. In today's energy surge, this is no longer the case. As measured by average annual job growth, only one of the 26 energy counties ranks among the top 30 economic performers in the West, while during the last energy boom half were top performers. In addition, more than half of energy counties lost population in the midst of the recent energy development surge.
The share of total jobs in energy-related fields in energy counties also has declined, from 23 percent in 1982 to 14 percent in 2005. The economies of these counties have diversified, so the relative contribution of the energy sectors is smaller than it used to be.
Third, an ongoing challenge for Western communities is increasing the competitiveness of local economies. The economies of energy-focused counties compared to their peers have:
• Less economic diversity and resilience.
• Lower levels of education in the work force.
• Higher rates of net out migration.
• Greater household income disparity.
When measured alongside rural peer counties, energy counties suggest an analogy to the fable of the tortoise and the hare. While counties that have focused on energy development race forward and then falter, the counties without energy development grew steadily. Even though there may be a short-term boom, research shows that these counties experience slower growth and more disparity in the long run.
These findings should be instructive to state and rural leaders. Counties that have focused on broader development choices are better off.
Ben Alexander of Bozeman is associate director of Headwaters Economics, an independent, nonprofit research group.