Job creation is important. Very important. That is why good critical thinking needs to be applied when considering jobs figures and claims. All too often, we read about job numbers in the business press and register it as either good or bad in our minds and then quickly dismiss it. But we should be thinking this through more thoroughly. Why? Because there can be a world of difference between abstract job numbers and concrete ramifications in the real world.
For instance, the U.S. has been engaged in a drilling frenzy for shale gas and tight oil. Regardless of what one thinks of fracking, the shale industry has indeed created jobs…but they have proven to be short term jobs and very expensive.
Bear with me.
As tight oil production from shales ramped up, U.S. supply disrupted the current global market pricing equilibrium and consequently oil prices began a free fall last summer. At present, prices have plunged about 60% since June. Not surprisingly, this has detrimentally impacted the companies involved in shale extraction with the result being that capital expenditure budgets are being slashed for 2015.
Due to this drop in oil prices, companies have begun to announce layoffs. Oil field service giants, Schlumberger and Baker Hughes have announced they are axing about 16,000 jobs between them. BP has announced another 3200 layoffs. And the Dallas Fed has estimated that the state of Texas will probably lose about 125,000 direct and indirect jobs from the oil sector. One state, 125,000 jobs.
This becomes truly interesting, however, when one considers that this is simply the normal pattern for this industry. Boom and bust. Short term party, usually longer term sober up. And the reason for this is that the oil and gas industry is commodity based and therefore subject to the vagaries of international commodity market pricing. But what if our energy and energy jobs came from a technology rather than a fuel?
A very different pattern emerges.
In 2014, the solar industry racked up impressive jobs numbers. In fact, much more impressive than oil and gas and even pipelines combined. A new report from the Solar Foundation and George Washington University shows the U.S. solar industry gained about 31,000 new jobs in 2014, a 21.8 percent growth rate or nearly twenty times more than the economy as a whole. But to put this in further perspective, oil and gas, including all pipeline jobs, gained a little more than half of the solar jobs.
And there’s more.
The solar industry alone now employs approximately 174,000 people in the U.S. When I first started tracking solar job numbers a mere three years ago there were about 183,000 total employment for wind, solar and geothermal combined. Now that figure is almost matched by solar alone. What a difference three years has made.
But the real irony here is that solar (and wind) is a technology, not a fuel, and technologies typically become cheaper with scale and time. And they are not subject to the vagaries of commodity pricing. So when looking to create…and sustain…long term good paying jobs, policy makers would do well to promote solar and wind over oil and gas. The math is actually quite simple. As prices have fallen in renewables, more people wanted the product and thus more jobs were created. Significantly more. This is in direct contrast to oil and gas where when prices fall, men and women end up out of work. And herein lies the crux: we can only create new jobs in oil and gas if we also create concomitant higher prices in the overall economy. High energy costs spill over into virtually everything else because energy is our economic bedrock. It is an interesting dichotomy: oil and gas creates jobs only if prices and inflation rise whereas renewables create jobs if prices and inflation fall.
We can already see evidence of this: power generation costs from solar have been on a downward trajectory and solar jobs are growing briskly, outperforming the economy as a whole by 20 times. The oil and gas industry, on the other hand, did indeed create jobs before this latest pricing rout but at the same time oil prices rose about 450% since 2000. As prices declined, jobs were lost. And this has always been the paradigm of oil and gas.
Do we really have to scratch our heads on this?
