Navigating Energy Booms and Busts

Energy Boom, Empty Classrooms?

To fuel the boom in the Marcellus region, firms have been willing to pay a premium for drillers and construction crews to build wells and lay pipelines. A 2017 study by the RAND Corporation found that in 2010-2014, wages for construction and extraction in the Ohio, Pennsylvania, and West Virginia counties affected by the shale boom were about $10,000 higher on average than for the rest of the country. While this represents a good opportunity for workers in those areas, one concern is that this premium might draw students away from school, potentially harming their long-term employment prospects as well as the overall human capital of the region.

"In southwestern Pennsylvania, there was a surge in low-skill employment over a very short period when the fracking pads were being constructed," says Jim Denova, vice president of the Claude Worthington Benedum Foundation, a nonprofit that promotes education in West Virginia and southwestern Pennsylvania. "I think those jobs tended to draw students out of community colleges."

It's a problem the region is all too familiar with. Coal mined in the Appalachians helped fuel the Industrial Revolution in America in the 18th and 19th centuries and production across two world wars, but since then, the industry has mostly been in decline. About nine out of 10 West Virginia coal mining jobs disappeared between 1940 and 2000. (See "The Future of Coal," Econ Focus, Fourth Quarter 2013.) Coal did enjoy a bit of a comeback in the 1970s as oil and natural gas declined. This led to a sudden increase in demand for coal miners in West Virginia, Pennsylvania, Kentucky, and Ohio that lasted about a decade.

Dan Black of the University of Chicago, Terra McKinnish of the University of Colorado Boulder, and Seth Sanders of Duke University found that during this coal boom, the wage gap between high school graduates and non-graduates shrank. In economics, the potential loss associated with choosing one investment over another is known as the opportunity cost. In this case, the opportunity cost of staying in school went up as wages for miners increased. As this happened, Black, McKinnish, and Sanders found that high school enrollment rates declined.

A similar dynamic played out in Alberta, Canada, during the same period. There, rising oil prices driven by the OPEC embargoes increased oil production and demand for workers. J.C. Herbert Emery of the University of New Brunswick, Ana Ferrer of the University of Waterloo, and David Green of the University of British Columbia found that enrollment in postsecondary education fell in Alberta during the 1973-1981 oil boom.

Early evidence suggests that the shale boom may be having a similar effect on students' decisions about staying in school. Elizabeth Cascio of Dartmouth College and Ayushi Narayan, a Ph.D. candidate in economics at Harvard University, found that fracking increased high school dropout rates, particularly for young men. And another study by Dan Rickman and Hongbo Wang of Oklahoma State University and John Winters of Iowa State University found that the shale boom reduced high school and college attainment among residents of Montana, North Dakota, and West Virginia. And declining student attendance isn't the only way energy booms could hurt education outcomes. Even students who remain in school may be affected.

"In the case of Texas, we saw no effect on completion rates and some small decline in student attendance," says Jeremy Weber, an economist at the University of Pittsburgh. "But changes in the labor market brought about by the shale boom influenced whether teachers stayed in the classroom."

In a recent paper with Joseph Marchand of the University of Alberta, Weber found that the average experience of teachers fell during the boom as teacher turnover went up. Some teachers may have been drawn to other private sector opportunities made more attractive by the boom, while others may have been able to retire thanks to royalties on property connected to drilling. Indeed, in another paper with Jason Brown of the Kansas City Fed and Timothy Fitzgerald of Texas Tech University, Weber found that the largest shale oil and gas regions generated $39 billion in private royalties in 2014. Whatever the cause, as the turnover of experienced teachers went up, standardized test performance at Texas schools went down.

This evidence seems to suggest that energy booms reduce educational attainment, at least in the short run. But in the case of the shale revolution, there may also be other factors pushing in the opposite direction.

The Appalachian region has been through slumps before. Past declines in coal mining and manufacturing displaced workers who came from long lines of coal miners or steel workers and strongly identified with that work. Despite efforts to retrain those workers for new advanced manufacturing or shale-related energy jobs, some reports suggest that the take-up rate of those programs has been low.

"Many people are still looking to find that one company where they can get hired and work until retirement," says John Goberish, the dean of workforce and continuing education at the Community College of Beaver County (CCBC) in Pennsylvania, where TEAM is headquartered. "But that's just not as likely as it was 30 or 40 years ago."

To that end, programs developed under ShaleNET and TEAM aim to give students a foundation of basic skills such as problem solving and teamwork while also teaching them the technical skills to meet a variety of industry needs. For example, a degree in mechatronics combines skills from mechanical and electrical engineering that apply to jobs in advanced manufacturing as well as natural gas extraction and processing.

"Those basic skills are critical across industries," says Schreffler. "I would tell my students all the time that once they understand the basic properties of mechanical or electronic systems, it's very easy to jump from one sector to another."

And to encourage students to stick with their training until they graduate, schools like CCBC and Pierpont offer flexible programs that allow students to take classes piecemeal and build toward certifications and a degree over time.

"We are trying to give students a lot of options, including an 'earn and learn' approach that includes internships, apprenticeships, and other on-the-job training where they don't have to choose between going to school and going to work. They can do both," says TEAM's McIntyre.

Companies have also expressed their support. "Firms want our students to have that associate's degree," says Goberish. "Many of our instructors are from industry and they know it will be beneficial to everyone if students finish their training."

Firms and schools are also looking ahead to the jobs to come and finding ways to ensure that the activity surrounding the shale boom doesn't just disappear once the wells are in place and the gas is flowing. Shell is building an ethane cracker plant in Beaver County to turn the ethane gas extracted from the shale there into plastics that can be used in a variety of products. Construction of the plant has employed thousands of workers, and once the plant is in place, it will represent hundreds of advanced manufacturing jobs for graduates of CCBC's programs. There have been discussions about building additional cracker plants along the Ohio River Valley, including in West Virginia.

By collaborating with industry, educators are trying to provide relevant and flexible programs to prepare workers for the next jobs. That constant change requires both students and teachers to be nimble.

"No one really knows what's coming down the pipeline next," says Gonzalez. "There's continuous innovation in technology, and it makes it hard for educators to keep pace with those changes. Likewise, employers may not know how many people they will need next year because the economy or the price of oil and gas could change. So everyone is just trying to do the best they can."