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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Oil Industry Drove US Wage Growth. Now that Is Over

Oil Rigs

A report from Pew Research Center reveals that between the third quarter of 2000 and the same period of last year, wages across the U.S. rose by an impressive 7.4 percent in real terms, driven largely by the oil and gas industry.

Wages in energy-dependent communities rose by the most, in some cases more than twofold, such as in Texas. This shouldn’t be surprising as the period reviewed coincides with the peak of the shale boom in the country, even though it also covers two periods of recession. Related: Why Oil CEOs Are Overpaid

But those positive effects are starting to disappear. The energy industry is cutting spending, and it has very little need for new personnel, to say the least. Even if crude rebounds to $60, which some analysts say will happen before the year’s end, E&Ps and their associates from oilfield services will most likely tread cautiously. The industry, in other words, is dealing with its very own depression and will hardly be able to continue to drive wage increases in the short- or medium-term.

Does it matter that the energy industry drove the wages increase between 2000 and 2015? Historically, yes. This is important data, revealing patterns and trends in the U.S. economy made possible by an unprecedented advance in oil and gas production. Does it matter for the future? Not really, besides perhaps in predictive modeling.

First of all, the data only covers the third quarter of every year until September 2015, to avoid the risk of having the calculations skewed because of seasonal wage patterns, as Pew Research explains. Secondly, and more importantly, the data used only focuses on those who are employed, therefore it doesn’t shed any light on downsizing policies, which have been an essential part of the energy industry’s coping mechanisms since mid-2014 and have certainly affected wage fluctuations. So the average wage might have increased, but fewer people may be employed. Wage data can’t capture these negative effects.

As of the start of February, layoffs in the U.S. energy industry had reached 100,000. The people who remained in employment may have continued to get fat paychecks, but there were a lot fewer of them. To add some scale, global energy industry layoffs have been calculated at a little over 350,000 since the start of the price rout. That’s a conservative estimate, but even so, U.S. energy layoffs accounted for almost a third of all job cuts in the industry as of February 2016.

E&Ps and oilfield service providers are planning more job cuts this year. In the wider economy, a survey from outplacement firm Challenger, Gray & Christmas found that this April saw the highest unemployment numbers since 2009, at the height of what many now refer to as the Great Recession. That’s worrying, seeing as the U.S. economy is supposed to have largely recovered from the fallout.

Pew Research Center said that the wage growth trend observed between 2000 and 2015 was the greatest increase historically. This can only make the sting from the current depression in oil and gas sharper. And things are not exactly looking rosy for the future, either. The price of crude may be up, but the increase is not as substantial as the drop has been. Related: Why the Oil Majors Face Inevitable Decline

The Fed is preparing for the next interest rate hike, which could come as soon as this month. This will push up the dollar and most probably weigh on crude oil, which is internationally priced in the greenback, hence less attractive for buyers operating in other currencies. In short, $50 is the new $120 for oil.

In such an environment, the energy industry is in no position to maintain its place as the wage growth driver. On the contrary. At the moment, oil and gas production is driving layoffs and most likely wage cuts in a host of other industries, from steelmaking to real estate. It’s only logical: oil is the most abundant and most widely used commodity in the world. What happens in oil has a direct or indirect effect on pretty much every other industry. So when the oil domino falls, all the rest will follow.

By Irina Slav for Oilprice.com

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  • Adrian on June 02 2016 said:
    "Wind turbine technician" has had the biggest number of new job openings in the past year, according to the labor department.

    There's a couple decades of buildout to go in that industry.
  • Thurmond on June 02 2016 said:
    Stop investing in dirty natural gas that contaminates air and water and ruins climate. Invest in leading edge energy like wind, solar, and hydrogen.

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