energy focusing counties

7/30/2019 Energy Focusing Counties

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A Report from the ENERGY AND THE WESTSeries by

September 2008

Fssi Fue Extracti asa Cuty EcmicDevepmet StrategyAre Eergy-cusig Cuties Beeftig?


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ii

P. O. Box 7059Bozeman, M 59771

406-559-7423

www.headwaterseconomics.org

Cover design and layout byMichael Cutter.

Fossi Fue Extraction as a County

Economic Deeoment StrategyAre Energyocusing Counties Benefting?

Headwaters Economics, Bozeman, Montana

September, 2008 - revised 07/11/09

publishedonline:

www.headwaterseconomics.org/energy

ABOUT HEADWATERS ECONOMICS

Headwaters Economics is an independent, nonprot research group. Our mission is to improvecommunity development and land management decisions in the West.


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iii

ABOUT THE EnErgy AnD thE WEstSERIES

Tis report is the third in a seriesEnergy and the Westpublished by Headwaters Economics onthe topic o energy development. Tis series is designed to assist the public and public ocials

in making inormed choices about energy development that will benet the region over the longterm.

In orthcoming reports in the Energy and the Westseries, listed below, we cover the policy contextor energy development in the West and the resulting impacts to states, counties, and communi-ties viewed rom the perspective o economic perormance (i.e., jobs, personal income, wages) andscal health (i.e., state and county budgets, revenues and expenses). Te series also includes stateand local area case studies, which highlight benets and costs in greater detail.

Titles in theEnergy and the Westseries:

EnergyDevelopmentandtheChangingEconomyoftheWest

U.S.EnergyNeedsandtheRoleofWesternPublicLands

FossilFuelExtractionasaCountyEconomicDevelopmentStrategy:AreEnergy-focusingCounties Beneting?

EnergyRevenueintheIntermountainWest:StateandLocalTaxesandRoyaltiesfromOil,NaturalGas,andCoal

ImpactsofEnergyDevelopmentinColorado,withaCaseStudyofMesaandGareldCounties

ImpactsofEnergyDevelopmentinWyoming,withaCaseStudyofSweetwaterCounty PotentialImpactsofEnergyDevelopmentinMontana,withaCaseStudyofthePowder

RiverBasin

PotentialImpactsofEnergyDevelopmentinNewMexico,withaCaseStudyofOteroCounty

Toaccessthesereports,goto:www.headwaterseconomics.org/energy.


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HEADWATERS ECONOMICS

ivFossi Fue Extraction as a County Economic Deeoment Strategy

TABlE oF ConTEnTS

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

SummaryFindings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Methods:eDenitionofEnergy-Focusing(EF)Counties . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

HasanEconomicFocusonEnergyDevelopmentBenetedCountiesoftheWest? . . . . . . . . . . 7

IsTodaysEnergySurgeanyDierentfromtheEnergyBoomofthe1970s? . . . . . . . . . . . . . . . 11

WhyDoEnergy-FocusingCountiesUnderperformRelativetoeirPeers? . . . . . . . . . . . . . . 17

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Appendix:DenitionsofNorthAmericanIndustrialClassicationSystem(NAICS)Codes . . 24

Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26


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1Fossi Fue Extraction as a County Economic Deeoment Strategy

INTRODUCTION

Arapidriseinthepriceforoil,naturalgas,andcoal,andapoliticalclimatethathasfavoredenergy development on public lands has made it possible or some counties in the West to use

energy development as a strategy or economic development.In this report in our Energy and the Westseries, we examine the consequences o ocusing on ossiluel extraction as an economic development strategy. Has it beneted counties in the long run?

Te recent rise in ossil uel development in the West is happening in the context o an economythat has already made a signicant shit, away rom a historic dependence on resource extraction,to an economy that today is driven primarily by service industries and knowledge-based occupa-tions,andretirementandinvestmentdollars.Asaconsequence,theeconomicroleofpubliclands, where much o todays energy development is taking place, has also shited.

Inthepast,theprincipaleconomiccontributionfromBureauofLandManagement(BLM),

ForestService,andstatelandsintheWestcamefromtherawmaterialsthatwereextractedandexportedfromtheregion.Today,thereisanadditionaleconomicroleforpubliclands.Formanycommunities, the recreational opportunities and scenery provided by public lands are essentialcomponents o the quality o lie that attracts and retains people and business, as well as retireesand investment income. Te scenery, wildlie, and recreation-oriented liestyle, in which publiclands play a critical role, are now economic assets, and a key component o the Wests competitiveadvantage.

Te inormation provided in this report can help those entrusted with the management o thelandsintheWesttounderstandtheconsequences,andpotentialtradeos,ofenergydevelopment.

Questions Answered in this Report:1. Has an economic ocus on energy development beneted counties o the West?

2. Istodaysenergysurgeanydierentfromtheenergyboomofthe1970s?

3. Why do energy-ocusing counties underperorm relative to their peers?


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SUMMARY FINDINGS

Counties that have focused on energy development are underperforming eco-nomically compared to peer counties that have little or no energy development.

It is well documented that counties ocused on energy extraction as an economic development

strategy have historically gone through periods o boom and bustthat their economies are vola-tile. What is less well understood is how these counties are economically in the long term.

Inthelongrun,theeconomiesofenergy-focusing(EF)countiesgrowmoreslowlythantheecon-omies o their peers that are not pursuing energy extraction as an economic development strategy.

From1990to2005,forexample,theaveragerateofgrowthofrealpersonalincomeinEFcoun-ties was 2.3 percent per year, compared to 2.9 percent in the peers. In terms o employment, theaverageannualgrowthofEFcountiesoverthesametimeperiodwas1.8percent,comparedto2.3percent or their peers.

An energy development surge no longer guarantees strong economic performance.In the energy boom that began in the 1970s and ended in the early 1980s, counties that wereocused on energy development, with a high portion o jobs in ossil uel development, were someo the top economic perormers in the West. In todays energy surge, this is no longer the case.

Asmeasuredbyaverageannualjobgrowth,onlyoneof26EFcountiesranksamongthetop30economic perormers in the West, while during the last energy boom hal were top perormers. Inaddition,morethanhalfofEFcountiesarelosingpopulationinthemidstoftodaysenergysurge.

InEFcounties,theshareoftotaljobsinenergy-relatedeldshasdeclined,from23percentin1982 (past energy boom) to 14 percent in 2005 (current energy surge). In recent years, jobs unre-

lated to energy extraction are growing rapidly and the western economy is much larger than in thepast.

Key Term: Energy-ocusing

We use the term eergy-cusig, abbreviated EF i this reprt, t reer t the 26 rura cuties ithe West that ccetrate their ecmic devepmet the extracti ssi ues. These cu-

ties have a reativey high prprti tta jbs (7% r mre) i the cuty that are ivved i the

extracti ssi ues (atura gas, i, ad ca). We use the term peers t describe the remaiig

254 wester cuties simiar size (57,000 pepe r ess). Fr a u defiti eergy-cusig (EF)

cuties ad their peers see the Methds secti page 4.


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A heavy reliance on fossil fuel extraction may point to diminished futurecompetitiveness.

AstheWestdevelopsitsfossilfuelenergyresources,anongoingchallengeisincreasingthecompe-

tiveness o local economies, especially in sectors unrelated to energy development.Compared to their peers in the West that have not pursued energy development as an economicstrategy,EFcountiesoverthelongtermarecharacterizedby:

Lesseconomicdiversityandresilience

Lowerlevelsofeducationintheworkforce

Agreatergapbetweenhighandlowincomehouseholds

Agrowingwagedisparitybetweenenergy-relatedworkersandallotherworkers

Lessabilitytoattractinvestmentandretirementdollars

eselong-termindicatorssuggestthatrelyingonfossilfuelextractionmaynotbeaneec-tive economic development strategy or competing in todays growing and more diverse westerneconomy.


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4Fssl Fuel Exac as a Cu Ecmc Develpme Sae

MEthoDS: thE DEFinition oF EnErgy-FoCUSing (EF) CoUntiES

We dene those counties that concentrate their economic strategy on the development o ossiluels as energy-ocusing (EF) counties. Tese are counties where a relatively high proportion

o total jobs in the county are involved in the extraction o ossil uels (natural gas, oil, and coal).Fossil uel extraction includes the ollowing codes rom the North American Industrial Classica-tion System (NAICS): drilling and extracting oil and gas reserves, extracting coal reserves, andsupport activities related to these. Tese NAICS codes are shown in able 1 and are dened inmore detail in the Appendix.1

Table 1.Description o Data Used to Show Employment and Personal Income Related to Energy Develop-

ment, by North American Industrial Classifcation System (NAICS) Code

Description NAICS Code

Oil and Gas

Oil and gas extraction 211Drilling oil and gas wells 213111Support activities for oil and gas operations (e.g., contract drilling, surveying,

mapping, operating oil and gas fields on a contract basis)213112

Coal

Coal mining 2121Support activities for coal mining (e.g., geophysical surveying, mapping) 213113

We dene a county as energy-ocusing (EF) i more than 7 percent o total private-sector employ-ment in the county was engaged in energy developmentnatural gas, oil, and coalin 2005.Te 7 percent cut-o was selected or two reasons: (1) below this threshold, the percent o em-ployment in ossil uel energy sectors in counties across the West alls o rapidly, and (2) any lessenergy activity as a share o total employment does not refect a signicant concentration on this

single industry.

Tere are 26 EF counties in the West. able 2 shows the list o EF counties, and their rela-tive concentration in oil and natural gas versus coal extraction. Tey are all counties with smallpopulationsewer than 57,000 people. Tere is one exception: San Juan County, New Mexico.

We eliminated San Juan County, New Mexico rom the list because it is more than twice as largeas the next largest EF county, and we wanted to compare EF counties, which are overwhelmingly

rural, with their rural counterparts in the West.

Tere are 254 peer counties in the West. Tese are western counties o similar size (57,000people or less) that do not have signicant employment devoted to the extraction o oil, naturalgas, and coal (less than 7% o total private employment). EF counties (yellow), along with theirnon-energy peers (blue), are shown in Map 1 (page 6).

O the 26 EF counties in the West, 12 had between 10 percent and 15 percent o all employmentengaged in ossil uel extraction (light green in able 2), and another eight had more than 15


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percentinvolvedinenergydevelopment(darkgreeninTable2).Fourcountieshadmorethan20percent o all employment in energy development, and one, Campbell County, Wyoming, had athird o its workorce employed directly in energy development.2

WeusedCountyBusinessPatternsdata,fromtheBureauoftheCensus,todeneEFcounties.Tis data does not include individual proprietors (the sel-employed), so the actual number oenergy workers in a given county will be larger. Te ratio o wage and salary workers to propri-etors is airly consistent across industries, so using wage and salary employment numbers does notsignicantly alter the overall employment share or each industry.3

Table 2. Energy-ocusing Counties in the West, 2005

EF counties and their eers are shown in Ma 1.

Defnition o MiningWhe we use the term miig i ur Energy and the Westseries, we reer primariy t jbs ad icme

assciated with the devepmet ad extracti i, atura gas, ad ca (the ssi ues). Because

restrictis paced the eve detai avaiabe rm the U.S. Departmet Cmmerce ad the

Bureau the Cesus, it is smetimes t pssibe t separate mieras miig rm ssi ues mi-

ig. I the eergy-cusig cuties aayzed i this reprt, the buk (ver 80%) miig is i eergydevepmet.

-

Energy

Jobs in

2005

Energy

Jobs

Share of

Total Jobs

in 2005

Total Oil &

Gas

Including

Support

Oil and Gas

Extraction

Drilling Oil

and Gas

Wells

Support

Activities for

Oil and Gas

Operations

Total Coal

Including

Support Coal Mining

Support

Activities for

Coal Mining

Population

in 2005

Campbell, Wyoming 5,436 30.0% 1,656 455 211 990 3,780 3,709 71 37,420 #REF!

Emery, Utah 668 24.5% 2 - - 2 667 660 7 10,711 #REF!

Cheyenne, Colorado 99 21.5% 99 13 70 15 - - - 1,952 #REF!

Rio Blanco, Colorado 343 20.9% 185 49 29 107 158 158 - 6,000 #REF!Uinta, Wyoming 1,163 17.5% 1,163 247 - 916 - - - 19,873 #REF!

Big Horn, Montana 354 16.7% 32 2 - 31 322 322 - 13,076 #REF!

Converse, Wyoming 610 16.4% 227 71 14 142 384 384 - 12,743 #REF!

Hot Springs, Wyoming 233 15.4% 233 36 1 196 - - - 4,568 #REF!

Fallon, Montana 124 14.9% 124 72 - 52 - - - 2,709 #REF!

Blaine, Montana 133 14.1% 133 - 70 63 - - - 6,634 #REF!

Sublette, Wyoming 309 14.0% 309 108 4 197 - - - 6,965 #REF!

Lincoln, Wyoming 639 13.6% 294 37 7 250 345 345 - 15,940 #REF!

Moffat, Colorado 507 13.5% 8 2 - 6 499 499 - 13,397 #REF!

Rosebud, Montana 359 13.4% - - - - 359 359 - 9,279 #REF!

Lea, New Mexico 2,065 12.3% 2,065 447 699 919 - - - 56,650 #REF!

Carbon, Utah 807 11.5% 75 44 15 15 733 731 2 19,459 #REF!

Gunnison, Colorado 689 11.4% - - - - 689 689 - 14,182 #REF!

Weston, Wyoming 179 11.2% 179 87 14 78 - - - 6,642 #REF!

Uintah, Utah 824 10.9% 824 195 60 569 - - - 27,129 #REF!

Eddy, New Mexico 1,835 10.5% 1,835 798 210 827 - - - 51,269 #REF!

San Juan, New Mexico 3,534 9.5% 2,786 671 500 1,615 748 748 - 125,820 #REF!

Sweetwater, Wyoming 1,344 9.0% 841 217 32 592 502 502 - 38,019 #REF!

Richland, Montana 317 8.8% 303 47 7 249 14 14 - 9,163 #REF!

Yuma, Colorado 204 8.4% 204 17 152 35 - - - 9,785 #REF!

Toole, Montana 124 7.8% 124 72 35 17 - - - 5,174 #REF!

Big Horn, Wyoming 175 7.3% 174 23 - 150 1 1 - 11,325 #REF!

Duchesne, Utah 293 7.0% 293 99 19 175 - - - 15,328 #REF!

Energy Jobs over 15% of Total Maximum Population (excl. San Juan) 56,650

Energy Jobs over 10% of Total

San Juan, NM was excluded because population is much larger and we want to focus on small rural communities that are heavily dependent on energy.

Oil and Gas Jobs: Coal Jobs:

Oil & Gas vs. Coal Breakout

Share of Total Energy Jobs

0% 50% 100%

Total Oil & Gas IncludingSupportTotal Coal Including Support


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Map 1. Energy-ocusing Counties and their Rural Peers


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HAS AN ECONOMIC FOCUS ON ENERGY DEvElOpMENT BENEFITED

COUNTIES OF THE WEST?

Inordertoanswerthisquestion,wecomparedtheeconomicperformanceofenergy-focusing(EF)

counties, measured in a variety o ways, to their rural peers.

Weusethreetimeperiodsforanalysis:

19701982 Aperiodofeconomicgrowth,culminatinginanationalrecession.isperiodalsocaptures an energy development boom period in the West.

19821990 Aperiodofrecoveryinthenationaleconomy,butdecline,orenergybustperiod,forEFcountiesintheWest.

19902005 Te beginning o a new period o growth in the national economy, dominated by ashit to a service and knowledge-based economy, an increasingly mobile workorce,

and the advent o new technology (personal computers, the Internet, telecommu-nications). Tis period also captures the most recent energy surge or parts o theWest, which began approximately in 2000.

Weusetheseperiodsforcomparisonbecausetheyframestarklydierenteconomicstages,andhighlightdierencesaswellasemergingsimilaritiesbetweenEFcountiesandtheirpeers.

emeasuresofperformanceweusedtocompareEFcountiestotheirruralpeersare:

Totalpersonalincome

Averageearningsperjob

Population

Percapitaincome

Employment

Troughout this report all dollars gures are in real terms, i.e., adjusted or infation.

Webeginbylookingatthelong-termeconomichistoryofEFcounties.Figure1showsthegrowthanddeclineofrealpersonalincomefrom1970to2005inEFcounties(inaggregate).Lightblueverticalbarsillustrateperiodsofnationalrecession.

eeconomichistoryofEFcountiesischaracterizedbytremendousvolatility.eboomin

the1970swasfollowedbyabustthatlastedadecadeinthe1980s.Inthe1990s,EFcountiesrecovered. Tis recovery was ueled by sectors unrelated to energy development, and representsa signicant departure rom the experience o the 1980s. Te steady growth in the 1990s wasextended and accelerated in the 2000s, when the current energy surge took root.


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Figure 1. Total Personal Income in Energy-ocusing (EF) Counties in the West, 19702005

(Indexed 1970=100)

-

0

50

100

150

200

250

300

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Income(Index1970=100)

National Recessions 26 Energy-focusing Counties

2000s

EnergySurge

1970s Energy Boom 1980s Energy Bust

NextweexamineEFcountiesascomparedtotheirpeersfromahistoricalperspective.Figure2shows the trends in personal income, by source (industry and non-labor income sources) rom1970to2000,fortheaggregateofthe26EFcountiesintheWest.Figure3showsthesameinfor-mation or the aggregate o the 254 rural peer counties in the West.

edierencesbetweentheeconomicexperienceofEFcountiesandtheirpeersarestarklyevi-dent.WhileEFcountieswentthroughadiscernableboom/bustcycle,theirpeercountiessawamuch steadier growth.

From1970to1982,totalpersonalincomeinEFcounties,drivenbymining,whichincludesenergydevelopment,grewrapidly.Fortherestofthe1980s,miningandenergydevelopmentcontracted severely and brought the rest o the economy down with it. By the 1990s, however,

with mining and energy development still declining though beginning to stabilize, the rest o theeconomygrewthistimeindependentofthefortunesofminingandenergyextraction.Growthin the 1990s was driven by the rise in personal income rom people employed in service andproessional industries, and the even-aster increase o non-labor income (retirement, investments,government transer payments, etc.).


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ForEFcounties,the1990srepresentedaperiodofeconomicdiversication.efactthattheeconomiesofEFcountiesbegantodiversify,eveninthefaceofrapiddeclinesinthemining(mostly energy development), is an important point. It underscores the economic shit that tookplace in the rural West between the 1980s and the 1990s, and shows that the context or todays

energy surge is an economy that is both larger and more diverse that in the past.

Figure 2. Historical Trends in Personal Income by Source, Energy-ocusing (EF) Counties in the West, 197020004

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

Lines w ithout markers are estimates.

Millions

ofDollars(2005)

Non-Labor Sources

(investments,

retirement, etc.)

Services and

Professional

M ining

Government

Construction

M anufacturing (incl.

forest products)

Farm and Ag. Services

Figure 3: Historical Trends in Personal Income by Source, Peer Counties in the West, 1970 2000 5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

Lines w ithout markers are estimates.

MillionsofDo

llars(2005)

Non-Labor Sources

(investments,

retirement, etc.)

Services and

Professional

Government

M anufacturing (incl.forest products)

Construction

Farm and Ag. Services

M ining


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IncontrasttoEFcounties,thenon-energypeer counties saw a long and continued growth in realpersonal income, with no slowdown ollowing the 1982 recession. raditional industries, rangingrom agriculture to manuacturing and construction, were all fat, while service and proessionalindustries, non-labor income, and government enterprises accounted or the growth in personal

income.

Tis tortoise-versus-the-hare comparison shows that it is not necessarily the case that rural countiesin the West need to develop energy resources (i they have them) in order to succeed. Both sets ocountiesEFcountiesandtheirpeersgrewtheireconomiesatthesamerateoverthelongterm.ispointisillustratedbyFigure4,whichshowsthelong-termtrendinpersonalincome,com-paringEFcountiestotheirpeercounties.egureisindexedto1970inordertoshowrelativerates o growth.

WhiletherateofgrowthinEFcountiesischaracterizedbyfastaccelerationandfastdeceleration,the peer counties pursued a steadier expansion, with higher rates o income growth since the early1990s.From1990to2005,theaveragerateofrealpersonalincomegrowthinEFcountieswas

2.3percentperyear,comparedto2.9percentinthepeercounties.Forthesametimeperiod,theaverageannualemploymentgrowthofEFcountieswas1.8percent,comparedto2.3percentforthe peer counties.6

Figure 4. Growth o Total Personal Income, Energy-ocusing (EF) Counties versus Peer Counties in the

West, Indexed, 19702005

90

110

130

150

170

190

210

230

250

270

290

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

MillionsofDollars(2005)-Indexedto1970=100

Non Energy-focusing Counties

Energy-focusing Counties


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esendingsshowthatEFcountieshavehistoricallygonethroughperiodsofboomandbust,outperorming their non-energy peers during the boom, and underperorming during the subse-quentbust.eyalsoshowthatEFcountiesbegantogrowanddiversifytheireconomiesinthe1990sindependentofminingandenergydevelopment.And,nally,overthelast15years,EF

counties have been alling behind in economic perormance compared to their peers.

IS TODAYS ENERGY SURGE ANY DIFFERENT FROM THE ENERGY

BOOM OF THE 1970S?

Figure5(page13)showsmeasuresofeconomicperformance(changeinpersonalincome,employ-ment,averageearningsperjob,population,andpercapitaincome),comparingEFcountiestotheirpeers.everticalbarchartsshowthedierenceingrowthratesforeachmeasurebetweenthetwocountytypes.Inthechart,barsabove0.0%(thex-axis)indicateaperiodwhenEFcoun-

tiesoutperformedthenon-EFcounties.Barchartsbelow0.0%refertoepisodeswhenEFcoun-ties underperormed compared to their peers.7

Duringthepastenergyboomperiod(19701982)EFcountiesshowedfastratesofgrowthinper-sonal income, employment, average earnings per job, population, and per capita income. Tis isconsistentwithFigure4thatshowedamuchhighergrowthrateforEFcountiesduringthe1970s.Duringtheensuingbust(19821990),thereverseoccurred,andEFcountiessawsignicantde-clines in all economic perormance indicators relative to their peers.

emostinterestingndingofFigure5iswhatoccurredfrom1990to2005,afterthelastenergybustandbeforeandduringthecurrentenergysurge,andhowdierentthecomparativeperfor-mance is between the two sets o counties when contrasted with the earlier boom period o the

1970s.ComparedtotheirpeercountiesintheWest,EFcountiessawadeclineinpersonalin-come, employment, and population, and a rise in average earnings per job and per capita incomefrom1990to2005.ismeansthatrelativetotheirpeers,EFcountiesunderperformedintermso the growth o real personal income, employment, and population, and outperormed in termso the growth in earnings per job and per capita income. In other words, in todays economy thereis no guarantee that counties that develop ossil uel reserves have any signicant advantage overthose counties without those resources.

WhatFigure5alsoshowsisthateconomicallytodaysenergysurgeisdierentfromthoseofthepast.Until1990,thepatternforEFcountieswastodoverywellduringaboomandverypoorlyduringabust.After1990,thispatternchanged,anditisnolongerthecasethatanenergysurge

causes those counties with a higher share o economic activity devoted to energy development tooutperformtheirruralpeers.Inthreeoftheveeconomicindicators,theEFcountiesdidworsethantheirpeers.Forthemeasureswheretheyoutperformedaverageearningsperjobandpercapitaincometherewasonlyamodestperformancedierence(0.6%peryearfrom1990to2005).


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ereasonsforthedierenceinrelativeperformanceareexploredinthenextsection.Inbrief,one reason is that the economy o the rural West has grown substantially in the last ew decades,and as a result new energy jobs now make up a much smaller percent o total employment than inthepast.Figure6showsthatinEFcountiesatthepeakofthelastboom,in1982,energy-related

jobs were 23 percent o total employment (the green line, and right axis in the gure), whereas, in2005,energy-relatedjobsinEFcountieswere14percentoftotalemployment.8 In other words,therelativeshareofenergyjobsinEFcountieshasdeclined.

In addition, todays energy surge, driven in part by ready access to public lands, is occurring inadierentcontext.Overthelastthreedecadestheeconomicroleofpubliclandshaschangedsignicantly, rom a repository o raw materials, to a haven or recreationists, tourists, retirees, andmobile businesses whose owners choose to locate in areas with a high quality o lie. Te eco-nomic transition, rom a resource-based economy, to one ocused on services, knowledge-basedoccupations, retirement, and investment dollars, has already taken place.

o put this in perspective, or the West as a whole, service-based occupations and non-labor

incomeconstitute86percentofthegrowthintheeconomyduringthelastthreedecades.Andtoday, 45 percent o total personal income comes rom wages earned by people employed in ser-vice-related occupations, while another 27 percent is rom non-labor sources, such as retirementand investments.9

O particular note, given that a new energy development surge started around the beginning othis decade, is the act that mining, which includes oil, natural gas, and coal development, is stilla relatively small component o the economy o the West, providing 1 percent o total personalincome in 2005.10

eWestisthemosturbanizedpartoftheU.S.,with90percentofpeoplelivinginmetropolitan

areas.

11

Asaresult,thesetrendslargelyrepresenturbanphenomena.Acloserlookattherestofthe Westthe rural West without metropolitan areasreveals similar ndings.

In the non-metropolitan West, a third o personal income in 2005 was generated by service-relatedindustries.Non-laborincomewasrelativelylargerthanintheruralWest,makingupmorethan40 percent o total personal income. 12 Mining, including oil and natural gas, constituted less than5 percent o total personal income and 2 percent o employment.13

ForathoroughdiscussionoftheeconomyoftheWestandtherelativeroleofenergydevelopment,please consult another report in our Energy and the Westseries, Energy Development and theChanging Economy of the West.


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Figure 5. Annual Rates o Growth o Key Economic Indicators, Shown as the Diference in Growth Rates

Between Energy-ocusing (EF) Counties and their Peers in the Rural West

3.6%

-4.5%

-0.5%

3.0%

-3.4%

-0.52%

2.4%

-2.5%

0.6%

1.9%

-2.1%

-1.1%

1.7%

-2.4%

0.6%

-6%

-4%

-2%

0%

2%

4%

6%

Energy Boom, 1970 to 1982 Energy Bust, 1982 to 1990 Broad Recovery and CurrentEnergy Surge, 1990 to 2005

DifferenceinAnnualGrowthRates(Adjusted)

Total Personal Income

Employment

Average Earnings per Job

Population

Per Capita Income

Energy-focusing are Outperforming

Compared to their Peers

Energy-focusing are Underperforming

Compared to Their Peers

Figure 6. Energy-related Jobs in the Energy-ocusing (EF) Counties in the West, as Share o Total, 19772005

10,000

30,000

50,000

70,000

90,000

110,000

130,000

150,000

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Jobs

0%

5%

10%

15%

20%

25%

30%

35%

ShareofTotal(%)

Energy Related Jobs Total Jobs Share of Total (Right)


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Te scale o the recent economic transition means that it is more dicult today or energy devel-opment, by itsel, to turn county economies into top economic perormers. Tis is illustrated inTable3,whichranksEFcountiesamongallcountiesintheWestaccordingtotheannualgrowtho jobs during three time periods. In the energy boom that took place rom 1970 to 1982, 10 o

the26EFcountieswereinthetop30countiesintheWestintermsofjobgrowth(lightgreen).Only one, oole County, Montana, was among the bottom 30 counties (orange).14

Duringtheensuingbust,from1982to1990,12of26EFcountiesrankedamongthebottom30 counties in the West in terms o job growth, and none were top perormers. Tis is consistentwithpreviousguresthatshowedsignicanteconomicdeclineforEFcountiesduringthisperiod.

ecurrentenergysurgehasnotcreatedarisingtideliftingallEFboatsasinthepast.Onlyonecounty,Sublette County, Wyoming, ranks among the top economic perormers in the West, in terms o jobgrowth. Campbell County, Wyoming, the most energy-ocusing county in the West, had the third highestrate o growth in the past energy boom, but ranks 85th in overall job growth in the current surge. EmeryCounty,Utahrankedfthinthepastboom,andis331stinthecurrentsurge.EvenSweetwaterCounty,

Wyoming, which is in the midst o a boom in natural gas development, ranks 254 out o 411 in terms ojob growth during the current energy surge, as compared to ourth in the last boom.

Table 3. Ranking o Energy-ocusing Counties Among all Counties in the West, in Terms o Average

Annual Job Growth

Sorted by Energy

Dependence:

Old Boom:

1970-1982

Bust:

1982-1990

RecentBoom: 2000-

2005

Campbell, Wyoming 5,436 30.0% 3 402 85

Emery, Utah 668 24.5% 5 385 331

Cheyenne, Colorado 99 21.5% 240 327 384

Rio Blanco, Colorado 343 20.9% 31 411 237

Uinta, Wyoming 1,163 17.5% 6 370 139

Big Horn, Montana 354 16.7% 296 348 202

Converse, Wyoming 610 16.4% 14 391 112

Hot Springs, Wyoming 233 15.4% 161 380 304

Fallon, Montana 124 14.9% 280 399 301

Blaine, Montana 133 14.1% 367 270 366

Sublette, Wyoming 309 14.0% 157 326 28

Lincoln, Wyoming 639 13.6% 149 353 110

Moffat, Colorado 507 13.5% 23 358 221

Rosebud, Montana 359 13.4% 7 390 375

Lea, New Mexico 2,065 12.3% 87 403 228

Carbon, Utah 807 11.5% 29 405 327

Gunnison, Colorado 689 11.4% 54 274 36

Weston, Wyoming 179 11.2% 116 382 215

Uintah, Utah 824 10.9% 28 393 88Eddy, New Mexico 1,835 10.5% 136 351 224

Sweetwater, Wyoming 1,344 9.0% 4 386 254

Richland, Montana 317 8.8% 104 408 321

Yuma, Colorado 204 8.4% 289 131 398

Toole, Montana 124 7.8% 386 299 372

Big Horn, Wyoming 175 7.3% 205 374 278

Duchesne, Utah 293 7.0% 22 375 102

Top 30 (out of 411 Western Counties)

Bottom 30 (out of 411 Western Counties)

EnergyShare of

Total (2005)

Rank among 411 western counties, basedon average annual job growth during:

EnergyJobs in 2005


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Inspiteoftherecentriseinenergydevelopmentactivity,mostEFcountiesareexperiencingpopu-lationlosses.Table4(page16)showsthatofthe26EFcounties,10(38%)haveseenanincreasein population rom 2000 to 2007 (highlighted in green). Tis includes some o the most heavilyenergy-focusingcountiesinWyoming,Utah,andColorado.Surprisingly,16(62%)oftheenergy-

ocusing counties lost population during the same period.15

Strangely, six o the counties that lost population at the same time added over 100 new jobs (notcountingproprietors),from2000to2005,inenergy-relatedelds.eseare:Blaine,Richland,andRosebudcounties,Montana;EddyandLeacounties,NewMexico;andUintaCounty,Wyoming.

Why are these counties losing population in the midst o an energy surge? One possible explana-tionmaybetherisingcostofliving,whichwediscussinmoredetailinthecasestudyreports.Asnew jobs are created in the elds o oil, natural gas, and coal mining, workers move in, the cost olaborrises,andwithalimitedsupplyofhousing,thecostofhousingrisesalongwithit.Non-en-ergyworkers,unabletocompeteforhousingandahighercostofliving,leave.Forexample,rentalpricesinRockSprings,Wyoming,inSweetwaterCounty,anEFcountythatisgrowingrapidly

because o energy development, increased by 100% between 2000 and 2007.16

Anotherpossibleexplanationisthatcommunitiesinthemidstofanenergysurgemaydisplaceother residents, retirees or example, who do not wish to live in what is becoming or many ormerrural towns a ast-paced industrial landscape. Tere may be other reasons or the loss o popula-tion that have nothing to do with energy development, and more to do with the plight o ruralcommunitiesingeneral.Regardlessofthereasons,thereappearstobenoguaranteethatmakinga choice to ocus economic activity on energy development will stem the loss o population that isso common in the rural West.

Further ReadingFr mre detai the impacts rapid eergy devepmet, see the tw reprts i the Energy and the

Westseries isted bew. They are avaiabe at: www.headwatersecmics.rg/eergy.

Impacts o Energy Development in Colorado, with a Case Study o Mesa and Garfeld Counties

Impacts o Energy Development in Wyoming, with a Case Study o Sweetwater County


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Table 4 . Net Migration per Thousand People per Year in Energy-ocusing (EF) Counties, 20002007

Migration 2000 to

2007 (People per 1000

per year)

Sublette, Wyoming 36.9

Campbell, Wyoming 14.8

Lincoln, Wyoming 8.0

Uintah, Utah 7.1

Converse, Wyoming 4.6

Duchesne, Utah 4.6

Weston, Wyoming 4.5

Gunnison, Colorado 2.7

Rio Blanco, Colorado 0.5

Lea, New Mexico -1.8

Moffat, Colorado -2.0

Sweetwater, Wyoming -2.2Big Horn, Wyoming -2.9

Hot Springs, Wyoming -4.4

Eddy, New Mexico -4.7

Yuma, Colorado -5.6

Uinta, Wyoming -5.9

Richland, Montana -6.0

Fallon, Montana -8.2

Toole, Montana -9.2

Carbon, Utah -10.6

Big Horn, Montana -10.9

Rosebud, Montana -13.0

Emery, Utah -15.9

Blaine, Montana -16.5

Cheyenne, Colorado -32.6

Unweighted Average -2.6

esendingsshowthatruraleconomiesfocusingonenergydevelopmenttodayareverydier-entthaninthepast.Unlikethepast,EFcountiesareunderperformingcomparedtotheirruralpeers.EFcountiesarenottheWeststopeconomicperformerstheyusedtobe.Today,onlyoneEFcountyranksamongthetop30economicperformersintheWest,whileduringthelastenergyboomhalfweretopperformers.EnergydevelopmentalsoplaysasmallerrelativeroleinEFcoun-tiesthaninthepast.eshareoftotaljobsinenergy-relatedeldsinEFcountieshasdeclined,rom a high o 23 percent in 1982 (peak o last energy boom) to 14 percent in 2005 (in the midstoftodaysenergysurge).Atthesametime,62percentofEFcountiesarelosingpopulationinthemidst o todays energy surge.


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WHY DO ENERGY-FOCUSING COUNTIES UNDERpERFORM

RElATIvE TO THEIR pEERS?

Inthissection,weexploreanswerstothequestionofwhyEFcountiesunderperformeconomically.

Energy-focusing Counties are Less Economically Diverse

Te more diverse the economy o a county, the better it is able to adapt to the constantly changingconditions o the global and national economy.17

ereareindicationsthatEFcountiesarediversifying.Figure2(page9),forexample,showsarise in certain sectors o the economy, such as services and non-labor income, despite declines inmining,includingenergydevelopment.Figure2showsthattherelativecontributionofminingis declining, in part, because the overall non-energy related portion o the economy is growing.Inspiteofthisdiversication,by2000(thebeginningofthecurrentsurge)EFcountieswerestill

muchlessdiverseeconomicallythantheirnon-EFpeers.o measure economic diversity we developed a specialization index or the aggregate economy oall26EFcountiesandcomparedthattoonedevelopedforthe254peercountiesintheWest.18Tis index is commonly used as a measure o industrial specialization in the economy. Counties

with a high specialization index are less economically diverse, more susceptible to volatility, andless innovative.19emostdiversescorepossiblewouldbeonethatexactlyemulatedtheU.S.economy, and would have a score o 0.0.20

Ourndingsshowthatin2000,thespecializationindexforEFcountieswas280,comparedtoascoreof106fortheirpeercounties.eprincipalwaysEFcountiesaredierentfromtheU.S.are:aheavyrelianceonminingandenergydevelopment(11.8%oftotalcomparedto0.4%for

theU.S.);under-relianceonmanufacturing(4.3%comparedto14.1%fortheU.S.);andunder-relianceonprofessionalscienticandtechnicalservices(2.4%comparedto5.9%fortheU.S.).emainwaysthepeercountiesintheWestdierfromtheU.S.are:under-relianceonmanufac-turing(7.9%);over-relianceonagriculture,forestryandshing(7.2%comparedto1.5%fortheU.S.),andover-relianceonaccommodationandfoodservices(8.6%comparedto6.1%fortheU.S.).21

Anotherwaytorepresenteconomicdiversityistoassessthoseindustriesthataregrowing,andthose that are in decline. able 5 shows the growth o jobs during the current energy surge (2000to2005),comparingEFcountiestotheirpeersintheWest.22

InEFcounties,theprincipalgrowth(indicatedinlightgreenwhenover5%ofnewjobs)wasindirect energy-related occupations (energy, mining, support activities or oil and natural gas opera-tions) and largely in occupations indirectly associated with energy development (manuacturing,construction, transportation, warehousing, and proessional and scientic services). Other sectors,such as retail trade, health care and social assistance, and accommodation and ood services alsogrew.


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In the peer counties, the bulk o the job growth came rom service-related occupations, withthe largest growth in health and social assistance, and accommodation and ood services. Otherareas in which the peer counties grew include construction, transportation and warehousing,retail trade, real estate, and other services. In addition, other data, detailed below, show that peercounties are more successully attracting investment and retirement dollars, and diversiying theireconomies with these income streams.23

edierenceintypesofgrowthcanbeseeninthecolumnatthefarrightofTable5.EFcoun-ties are specializing, adding those sectors that are necessary or the exploration, development,extraction, and transportation o ossil uels. Tey do not create many new jobs that characterizethe broader economic shit in the western economy over the last several decades, namely the devel-opment o a service-based and knowledge-based economy.

Table 5. New Jobs by Industrial Sector Comparing Energy-ocusing Counties to Peer Counties in the West,

20002005

New Jobs

2000-2005

New Jobs

Share of

Total

New Jobs

2000-2005

New Jobs

Share of

Total

Industry 15,312 100.0% 62,320 100.0%

-

Energy 4,043 26.4% 643 1.0%

Manufacturing 775 5.1% (9,873) -15.8%

Mining 2,249 14.7% (1,234) -2.0%

Support Activities for Oil and Gas Operations 2,387 15.6% 599 1.0%

Management of Companies and Enterprises 969 6.3% 103 0.2%

Drilling Oil and Gas Wells 922 6.0% (7) 0.0%

Oil and Gas Extraction 632 4.1% 170 0.3%

Unclassified (108) -0.7% (2,392) -3.8%

Forestry, Fishing, Hunting, and Agricul ture Support 38 0.3% (1,440) -2.3%

Information 284 1.9% (416) -0.7%

Other Services (except Public Administration) 567 3.7% 830 1.3%

Utilities 293 1.9% (60) -0.1%

Educational Services 131 0.9% (187) -0.3%

Wholesale Trade 12 0.1% (523) -0.8%

Support Activities for Coal Mining 76 0.5% (125) -0.2%

Finance and Insurance 652 4.3% 2,360 3.8%

Auxiliaries, except Corporate, Subsidiary, and Regional i i(412) -2.7% (1,930) -3.1%

Coal Mining 25 0.2% 6 0.0%

Construction 1,756 11.5% 7,969 12.8%

Transportation and Warehousing 1,382 9.0% 6,466 10.4%

Retail Trade 892 5.8% 5,187 8.3%

Administrative and Support and Waste Management and 669 4.4% 4,533 7.3%

Professional, Scienti fic , and Technical Services 1,261 8.2% 7,484 12.0%

Real Estate and Rental and Leasing 100 0.7% 4,660 7.5%

Health Care and Social Assistance 3,510 22.9% 19,682 31.6%

Arts, Entertainment, and Recreation 262 1.7% 7,026 11.3%

Accommodation and Food Services 789 5.2% 13,778 22.1%

Green if over 5%, Brown if under -5%.

2 6 En e rg y - Fo cu si n g Co u nt i es 2 5 4 N o n En e rg y - Fo cu si n g Co u nt i es

New Jobs

Share of Total

-20% 0% 20% 40%

New Jobs

Share of Total

-50% 0% 50%


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Overall Wages Have Not Increased at the Same Rate as Energy Industry Wages

AnotherpossiblereasonfortherelativelylowerperformanceofEFcountiesisagrowinggapbetween what mine workers earn (mine includes energy-related elds in this report) compared to

those working in other sectors o the economy.Figure7showsaverageannualwagesofmineworkers(primarilyoilandnaturalgasworkers)inEFcounties,comparedtowagesintherestoftheeconomy.In1990,thewagegapwas$23,361;mine

workers earned $53,362 per year, on average, while those in other sectors earned, on average, a littleover$30,000peryear.Wagesinnon-miningsectorshavenotchangedmuchsincethen.From1990to2006,theygrew(inrealterms)by7.9percent,to$32,381in2006.Duringthattime,averageannual wages or the mining sector grew by 22 percent, to over $65,000 per year in 2006. Te wagegapgrewtoadierenceof$32,776,whichis$9,414morethanitwasin1990.24

It is possible that the 7.9 percent growth in non-mining wages would not have happened i therewerentanyminingactivity.From1990to2006,averageannualwagesinthepeercountiesgrew

more slowly, by 6 percent. In 2006, average annual wages in non-mining sectors in the peer coun-tieswas$30,555,lowerthanthatoftheEFcounties,at$32,381.25

egrowingwagegapinEFcountiesbetweenmineandallotherworkersfrom$23,361in1990 to $32,776 in 2006is not a healthy sign. Te danger is that more people, including teach-ers, nurses, and arm workers, will be let behind i renewed energy development increases the gen-eral cost o living, especially the cost o housing, in a place. We explore this issue in more depth inthe case study reports in the Energy and the Westseries.

Figure 7. Average Annual Wages in Mining, including Energy Development, Compared to the Rest o the

Economy, in Energy-ocusing Counties in the West, 1990-2006

$65,157

$53,362

$32,381$30,002

20000

25000

30000

35000

40000

45000

50000

55000

60000

65000

70000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Wages(2006$'s)

Mining ( inc l. o il and gas) Tota l exc lud ing mining

In 1990,

wage

gap was

$23,361

In 2006,

wage gap

expands to

$32,776


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Energy-focusing Counties Have Less Equitable Wealth Distribution

Acommunitywhereeveryoneisdoingcomparativelywellstandsahigherchanceofbeingableto adapt to change and grow.26 We measured the gap between high income and low income

by counting the number o households earning more than $150,000 per year (high income)divided by the number o households earning less than $30,000 per year (low income) .27

AttheendofthelastenergybustcycleandbeforeEFcountiesstartedtheireconomicrecovery,in1990,EFcountieshadalargegapbetweenhighincomeandlowincomehouseholds:foreveryhousehold earning over $150,000 per year, there were 108 household earning less than $30,000per year. By comparison, that same year in the peer counties, or every household earning morethan $150,000 per year, there 87 households earning less than $30,000. Tis means that at thebeginningoftherecoveryperiodthatstartedinthe1990s,EFcountieshadarelativelylessequi-tabledistributionofwealth;i.e.,thereweremanymorelowincomerelativetohighincome.

Fortunately,by2000(atthebeginningofthecurrentenergysurge,andattheendoftherecovery

that took place during the 1990s) the high income-low income ratio declined signicantly orboth county types.28InEFcounties,foreveryhighincomehousehold,therewere27lowincomehouseholds(aratioof1:27;forthepeercountiesin2000theratiowas1:17).

atEFcountieshadalargergapbetweenhighincomeandlowincomethantheirpeersattheend o a bust period and beore embarking on economic recovery (i.e., 1990) is related to the actthatEFcountieshavenotdiversiedtheireconomiesanddevelopedamoremixedsuiteofservice-relatedindustries.By2000,afteradecadeofmorebalancedeconomicgrowth,EFcountieshadimproved their earnings distribution, but still lagged behind their peers.

Inthecurrentenergysurge,EFcountiesareonceagaindevelopinganearningsgapamongresidents.Tis is attributable to the widening gap between earnings o mine workers and the rest o the econo-

my, a gap that is growing and was over $32,000 in 2006. I cost-o-living actors are considered, it islikely that people on xed income or earning lower average wages are alling even urther behind.

ItisprematuretoestimatewhatincomedistributionwilllooklikeinEFcountiesafterthecurrentsurge, but it is plausible that the gap between the high income and low income households willcontinue to widen or counties that ocus on energy development as a rural development strategy.

Energy-focusing Counties Have Less Educated Workforces

AnimportantconditionforeconomicsuccessintodaysU.S.economyisaneducatedworkforce.29We look at the percent o the adult population with and without a high school and college educa-

tion.

AttheendofthelastenergybustcycleandbeforeEFcountiesstartedtheireconomicrecovery,in1990,EFcountieshadsomewhatlesseducatedworkforcescomparedtotheirpeers.In1990,24percentoftheadultpopulationinEFcountiesdidnothaveahighschooldiploma,whichisslightly higher than their peer counties (23%). By 2000, 19 percent o the adult population in theEFcountiesdidnothaveahighschooldiploma,animprovementfromthepreviousdecade,butstill higher than their peers (17%).30


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In terms o college education, in 1990 the percent o the adult population with a college degree wasaboutequalamongthetwocountytypes,althoughslightlyless(14%comparedto16%)forEFcoun-ties. By 2000, at the end o the 1990s recovery, the percent o the population with a college degreeincreasedslightlyforEFcounties(to16%),butremainedlowerthaninthenon-EFpeers(20%).

Tese statistics show that counties ocused on energy development lag behind their peers in termso workorce education levels. Even though all counties are experiencing increases in workorceeducationlevels,theproportionofcollege-educatedworkersinEFcountiesatthebeginningofthis century had been reached by their non-energy peers a decade earlier.

Energy-focusing Counties Attract Fewer Retirement and Investment Dollars

Te importance o non-labor sources o income shows no signs o diminishing in the near uture.AsAmericansgeneratemorewealthandourpopulationages,morepeoplewillusetheirsavings,investments, and programs like Social Security to sustain their livelihoods, whether they are still

working or retired. By 2005, more than 40 percent o total personal income in the rural West wasrom non-labor sources, including transer payments, dividends, interest, and rent.

Non-laborincome,whenmeasuredonapercapitabasis,isameasureofacommunitysabilitytoattract and retain this ast-growing segment o the economy.

Figure8showsthegrowthofpercapitanon-laborincome,comparingEFcountiestotheirpeersin the West. In 1970, per capita non-labor income was similar between the two county types,withonlya$700dierence.By2005,thedierencewas$1,798.

Tese gures show that in the midst o todays energy development surge, counties ocusing onenergy extraction are less able to attract retirement and investment dollars than their peers.31

Figure 8. Growth o Per Capita Non-Labor Income, Energy-ocusing Counties Compared to Peers,

19702005

$4,520

1990$8,722

2000$10,137

$10,535

1982$7,757

$3,820

$7,016

$8,613$8,737

$6,205

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$11,000

$12,000

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Non-LaborIncomePe

rCapitainDollars(2005)

Non Energy-focusing Counties

Energy-focusing counties

Difference:$700

Difference:$1,706

Difference:$1,524

Difference:

$1,798

Difference:

$1,552


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esendingsshowthattodaysenergysurgeisdierentthaninthepast,andinseveralimportantwaysEFcountiestodayarelesswellpositionedtocompeteeconomically.EFcountiesarelessdiverse economically, which makes them less resilient but also means they are less successul atcompeting or new jobs and income in growing service sectors where most o the Wests economic

growthhastakenplaceinrecentdecades.EFcountiesarealsocharacterizedbyagreatergapbetween high and low income households, and between the earnings o mine and energy workersandallotherworkers.AndEFcountiesarelesswelleducatedandattractlessinvestmentandretirement income, both important areas or uture competiveness.

CONClUSIONS

In the West today, it is less certain that energy development will bring the prosperity it oncedid, and reason to be concerned that a concentration on ossil uel extraction may impair a localeconomys ability to grow and compete successully in todays more diverse economy.

In the past, the pattern o development or counties with ossil uel reserves was to grow quickly,reach a peak, and then decline sharplythe so-called boom and bust cycle. Beginning in the1990s, it became clear that the economy in the West was diversiying, with especially rapid jobgrowth occurring in service- and knowledge-based sectors, and that much o the real growth inpersonal income was associated with this service economy, and an aging population and the infuxo retirement and investment dollars.

Te implications o these changesthe growth and diversication o the western economy as awhole, including rural areasis that energy development today does not have the same impact ithad in the past. In the 1970s and early 1980s, there were ew economic alternatives in rural com-munities. Te discovery and development o oil and natural gas, or coal, created new high-wage

jobs where in many cases there had been ew or none. By the early 2000s, the West had, with aew exceptions, decoupled rom its reliance on resource extraction, and enjoyed a wider range oeconomic choices than ever beore.

Te current surge in energy development takes place in this changed economic context. In coun-ties that have pursued energy extraction as an economic development strategyplaces we callenergy-focusing(EF)inthisreportthelong-termindicatorssuggestthatrelyingonfossilfuelextractionisnotaneectiveeconomicdevelopmentstrategyforcompetingintodaysgrowingandmore diverse western economy.

Whencomparedtotheirruralpeercounties,EFcountiessuggestananalogytothefableofthetortoiseandthehare.WhileEFcountiesraceforwardandthenfalter,thenon-energypeercoun-

tiesgrowsteadily.Atthenishline,countiesthathavefocusedonbroaderdevelopmentchoicesarebettero,withhigherratesofgrowth,morediverseeconomies,better-educatedpopulations,a smaller gap between high and low income households, and more retirement and investmentincome.


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Economics is the study o how people make choices in a constrained environment. Te ndingsin this report show state and rural leaders, as well as managers o public lands (where much o theenergy development is taking place in the West today), that a concentration on ossil uel develop-ment can undercut the competitive position o a regional or local economy.

Further Reading in ourEnergy and the West Serieslear hw eergy devepmet impacts:

Long-termeconomicprosperityfortowns,counties,andstates.

Countyandstatetaxes.

Consumerprices.

Nationalgoalsforenergyindependence.

Theeconomicandscalwell-beingofenergy-producingstates,withemphasisonColorado,New

Mexic, Mtaa, ad Wymig.

T access ur Energy and the Westseries, visit: www.headwatersecmics.rg/eergy.


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APPEnDIX

NORTH AMERICAN INDUSTRIAl ClASSIFICATION SYSTEM (NAICS)

DEFINITIONS

elanguagebelowiscopiedverbatimfromtheU.S.CensusBureaus2002NAICSManualhttp://www.census.gov/epcd/naics02/index.htm l

211 Oil and Gas Extraction

IndustriesintheOilandGasExtractionsubsectoroperateand/ordevelopoilandgaseldproperties.Suchactivitiesmayincludeexplorationforcrudepetroleumandnaturalgas;drilling,completing,andequippingwells;operatingseparators,emulsionbreakers,desiltingequipment,andeldgatheringlinesforcrudepetroleumandnaturalgas;andallotheractivitiesinthepreparationofoilandgasuptothepointo shipment rom the producing property. Tis subsector includes the production o crude petroleum, themining and extraction o oil rom oil shale and oil sands, and the production o natural gas, sulur recov-ery rom natural gas, and recovery o hydrocarbon liquids.

Establishments in this subsector include those that operate oil and gas wells on their own account or orothers on a contract or ee basis. Establishments primarily engaged in providing support services, on a eeor contract basis, required or the drilling or operation o oil and gas wells (except geophysical surveyingand mapping, mine site preparation, and construction o oil/gas pipelines) are classied in Subsector 213,SupportActivitiesforMining.

213111 Drilling Oil and Gas Wells

isU.S.industrycomprisesestablishmentsprimarilyengagedindrillingoilandgaswellsforothersonacontract or ee basis. Tis industry includes contractors that specialize in spudding in, drilling in, redrill-ing, and directional drilling.

213112 Support Activities for Oil and Gas Operations

isU.S.industrycomprisesestablishmentsprimarilyengagedinperformingsupportactivitiesonacontract or ee basis or oil and gas operations (except site preparation and related construction activities).Servicesincludedareexploration(exceptgeophysicalsurveyingandmapping);excavatingslushpitsandcellars,wellsurveying;running,cutting,andpullingcasings,tubes,androds;cementingwells,shootingwells;perforatingwellcasings;acidizingandchemicallytreatingwells;andcleaningout,bailing,andswab-bing wells.

2121 Coal Mining

isindustrycomprisesestablishmentsprimarilyengagedinoneormoreofthefollowing:(1)miningbituminous coal, anthracite, and lignite by underground mining, auger mining, strip mining, culm bankmining,andothersurfacemining;(2)developingcoalminesites;and(3)beneciating(i.e.,preparing)coal (e.g., cleaning, washing, screening, and sizing coal).

213113 Support Activities for Coal Mining

isU.S.industrycomprisesestablishmentsprimarilyengagedinprovidingsupportactivitiesforcoal mining (except site preparation and related construction activities) on a contract or ee basis.Exploration or coal is included in this industry. Exploration includes traditional prospectingmethods, such as taking core samples and making geological observations at prospective sites.


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EnDnoTES

1 U.S.BureauoftheCensus,NorthAmericanIndustrialClassicationSystem(NAICS):http://www.census.gov/epcd/www/naics.html.

2 U.S.BureauoftheCensus,County Business Patterns (CBP), 2008.Washington,D.C.3 Te data were derived rom statistics published by the Bureau o the Census, in their publication County

Business Patterns(CBP). We used this data sources primarily because it is devoid o disclosure restrictions.Disclosurerestrictionsaredatagaps,whereagovernmentagencywillnotreleaseinformationtoprotectthecondentialityofindividualrms,andoccurmostfrequentlywithdataintheRegionalEconomicInformationSystem(REIS)oftheU.S.DepartmentofCommerce.edisadvantageofCBPisthat,unlikeREISdata,itdoesnotincludetheself-employedorgovernmentemployment.Ifarelativemeasureisused(i.e., percent o total), as we did, the exclusion o the sel-employed or proprietors does not make a signicantdierence.Someminingsectorsemployveryfewsingle-ownerproprietors,sotheinclusionofproprietorsdata, i it were available, would actually lower the size o mining relative to other sectors. Coal mining andsupport activities or mining are both examples o this, where only 8 percent o the industry is made upo proprietors. Other sectors employ more proprietors than average so the inclusion o proprietors would

raise their shares. Oil and gas extraction is an example o this, where 12 to 14 percent o employment isinproprietors.Ourdenitionofenergyincludesallthreesectors.Togetherthedierencesoseteachotherandtheresultantvaluesforenergysshareoftotalarenotaectedbytheexclusionofproprietors.Byusinga data set that does not count government employment as part o total, our energy share o total calculationsare higher than they would otherwise be, especially in some communities that have a lot o government. I

we were to calculate energy shares using both proprietors and government, we expect the results would reportshares that were the same or lower.

4 U.S.DepartmentofCommerce,Regional Economic Information System (REIS),2008. Bureau o EconomicAnalysis.Washington,D.C.

5 Ibid.6 CBP 2008.7 DataforgurederivedfromREIS2008.8

DataforgurederivedfromCBP2008.9 Ibid,REIS2008.Miningpersonalincomebasedonestimates.Employmentbasedonnon-discloseddatafromBureauofLaborStatistics,Quarterly Census of Employment and Wages(QCEW).

10Ibid,REIS2008.11 Bureau o the Census 2008. Calculations based on dividing the total number o people living in metropolitanstatisticalareas(MSAs)bythetotalpopulationoftheWest.

12Ibid,REIS2008.13Ibid,REIS2008.Miningpersonalincomebasedonestimates.Employmentbasedonnon-discloseddatafromBureauofLaborStatistics,QCEW.

14EmploymentdataintablefromREIS2008andCBP2008.15FiguresintablederivedfromU.S.BureauoftheCensus,2008.16HousingData,StateofWYDeptofEconomicAnalysisandInfo.http://eadiv.state.wy.us/housin g.17Forausefulreviewoftheacademicliteratureoneconomicdiversity,seeSterling,Andrew.1998.OntheEconomicsandAnalysisofDiversity.ElectronicWorkingPapersSeries,UniversityofSussex.http://www.sussex.ac.uk/Units/spru/publications/imprint/sewps/sewp28/sewp28.pd. More narrowly, consultMalizia,E.E.andK.Shanzai.2006.eInuenceofEconomicDiversityonUnemploymentandStability.JournalofRegionalScience.33(2):221-235.

18especializationindexwascalculatedbysummingthesquaresofthedierencebetweentheaggregate(i.e.,26EFcounties,254peercounties)andtheU.S.economy:


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SPECIALit=((EMPijt/EMPit)-(EMPusjt/EMPust))2where, SPECIALit=specializationofeconomyincountyiinyeart EMPijt=employmentinindustryjincountyiinyeart EMPit=totalemploymentincountyiinyeart EMPusjt=employmentinindustryjinU.S.inyeart

EMPust=totalemploymentinU.S.inyeart n=numberofindustries19ForanexampleoftheapplicationofasimilarspecializationindexbytheFederalReserve,seeOzcan-KalemltS.,B.E.SorensenandO.Yosha.2000.Risk-sharingandIndustrialSpecialization:RegionalandInternationalEvidence.RWP00-06.KansasCity:FederalReserveBankofKansasCity.

20edataandcalculationsforthespecializationindicescanbefoundonpage23oftheEFandpeerproles,locatedon:www.headwaterseconomics/energy.

21DatafromU.S.BureauoftheCensus,2000,FileSF#,TableP48.22DataforthetablederivedfromCBP2008.23REIS2008.24DataforgurefromBureauofLaborStatistics(BLS).Quarterly Census of Employment and Wages (QCEW),

2008.Washington,D.C.ecategoryminingconsistsprimarilyofworkersinvolvedinthedevelopmentand extraction o oil, natural gas and coal.

25Ibid,BLS2008.26Forareviewoftheacademicliteratureontherelationshipbetweenincomedistributionandeconomicgrowth,see:http://micro5.mscc.huji.ac.il/~melchior/html/Income%20Distribution.htm. More narrowly,consultHenry,C.W.1998.IncomeInequality,HumanCapitalAccumulationandEconomicPerformance.Te Economic Journal.108(Jan):44-59.

27DatafromtheBureauoftheCensus,1990and2000DecennialCensusofPopulation,andHousing.28eimprovedratioswerenotbecausethereweresignicantlyfewerlow-incomefamiliesin2000.Rather,thenumberofhigh-incomefamilies,inbothsetsofcounties,increased.In1990,0.9%ofhouseholdintheEFcounties were high-income. By 2000, 2.3% were rich. By comparison, in 1990 1.1% o the households inthe peer counties were high-income. By 2000, 5.4% were high-income.

29AccordingtotheBureauofLaborStatistics,earningsarehigherandtheunemploymentrateislowerforpeoplewhohavehighlevelsofeducation:http://www.bls.gov/opub/ted/2003/oct/wk3/art04.htm. See alsoRay,M.andM.Tucker.1992.Tinking for a Living: Education and the Wealth of Nations.BasicBooks,NewYork,NewYork.

30DatafromtheBureauoftheCensus,1990and2000DecennialCensusofPopulation,andHousing.31REIS2008.


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