Report

The Impacts of Lower Natural Gas Prices on Jobs in the US Manufacturing Sector

Jan 22, 2018 | Wayne Gray, Joshua Linn, Richard D. Morgenstern

Summary

This new study finds the dramatic US shale gas price declines increased manufacturing and energy intensive industry employment much less than previously thought.

Key Findings

  • We analyze the effects of natural gas prices on local (county-level) employment, a based on micro-level data.
  • We find that the shale revolution–induced drop in natural gas prices raised total manufacturing employment by 0.6 percent.
  • The decline in natural gas prices between 2007 and 2012 increased employment by 1.8 percent in the relatively gas-intensive industries, which is three times greater than the estimate for the entire manufacturing sector.
  • Simulations of our model suggest that the gas price changes resulting from higher natural gas exports would have relatively small impacts on the manufacturing sector.

Abstract

The recovery of the US manufacturing sector following the 2008–2009 economic recession has coincided with a sharp drop in natural gas prices. Popular discussion has often attributed a large portion of the manufacturing recovery to this drop in gas prices, but little rigorous analysis has been conducted on this issue. We use confidential plant-level data to estimate the manufacturing employment effects of changes in natural gas and other energy prices. Previous analyses have used aggregated data and failed to control for multiple drivers of employment dynamics, such as other input costs and proximity to product demand. We show that controlling for these factors substantially diminishes the effects of natural gas and electricity prices on manufacturing employment. Accounting for the direct effects of natural gas prices as well as the indirect effects via electricity prices, we estimate that the decline in natural gas prices between 2007 and 2012 raised overall manufacturing employment by 0.6 percent. For industries in the top quartile of the gas intensity distribution, the natural gas price drop raised employment by three times as much—that is, 1.8 percent.