WASHINGTON—The US manufacturing sector, accounting for more than 50 percent of the high-wage blue-collar jobs in the country and 20 percent of manufacturing activity worldwide, appears to have recovered from the 2008 to 2009 recession. Many economists credit the major US natural gas price declines of the past decade with an important role in this recovery, with some estimating that the manufacturing employment gained from the price declines may be up to 30 percent for energy-intensive industries. According to a new study posted by Resources for the Future (RFF), however, the impact of gas prices on the sector is less than previously thought.
The study is The Impacts of Lower Natural Gas Prices on Jobs in the US Manufacturing Sector. It is authored by RFF senior fellows Joshua Linn and Richard Morgenstern, and Clark University Professor of Economics Wayne Gray. The paper examines in great detail the relationship between natural gas prices and employment in the manufacturing sector. The authors conclude:
“The overall finding of this research is that the 50 percent plus US natural gas price declines of the past decade have, indeed, had a favorable impact on domestic manufacturing employment, albeit not as favorable as previous studies have estimated.” The difference is that the authors look at a quite granular level and control for a variety of location-specific factors that other analyses ignore in their exclusive reliance on national-level data.
Unsurprisingly, according to the report, the local availability of skilled labor, proximity to key intermediate inputs, and other agglomeration factors can exert a strong influence on firms’ decisions to expand production and, correspondingly, employment. The report concludes that failure to account for these factors can distort the estimated role of natural gas price changes.
Read the full study: The Impacts of Lower Natural Gas Prices on Jobs in the US Manufacturing Sector.
RFF wishes to acknowledge the significant contribution that Intern John Williamson made to the writing and production of this press release.