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California Oil Industry Jobs: “There you go again”

“There you go again.”

These historic words might now be best applied to the California oil industry, and its latest attempt to confuse and confound with questionable economic analysis.

Despite previous debunking of a similar piece of research, the Western States Petroleum Association (WSPA) just released an economic impact study by the Los Angeles County Economic Development Corporation (LAECD), claiming the industry supported nearly half a million direct and indirect jobs and generated $113 billion in economic value in California in 2012.

The study is being touted by oil companies and their front groups, like Californians Against Higher Taxes, who are looking to weigh in on the debate in Sacramento over whether to tax oil extraction and temporarily halt fracking in the state. 

Here we go again. WSPA has a long record of inflating the economic impact of the oil industry’s activities with commissioned research tailored to suit its member companies’ political needs. Over the last three years, WSPA has produced three similar studies touting the actual and potential economic impact of the oil industry on the state – each telling a different story.

In 2011, WSPA commissioned an analysis by the consulting firm Purvin and Gertz (now part of IHS), which found the industry provided 94,860 direct jobs in California in 2009 – half the number of direct jobs touted in the current study, despite a net decrease in oil production in the state of just under five percent from 2009 to 2012.

The Difference Between Direct and Indirect Jobs

According to the LAECD report, direct jobs refer to those employees hired directly by the industry itself, whereas indirect jobs are those supported by “the purchases made by the industry and any of its suppliers” – e.g. truck drivers moving industry products to market. Induced jobs are those supported by the “spending of employees whose wages are sustained by direct and indirect spending”, e.g. salespeople in stores frequented by industry employees.

According to the Energy Information Administration, employment in the oil and gas industry (defined as drilling, extraction and support activities) nationwide did increase generally over this period, with gains of 40 percent from 2007-12.   But those increases were in Texas and North Dakota, not California.

In 2012, WSPA funded another study, this one farmed out to USC, forecasting a massive oil bonanza from development of the Monterey Shale. That study made national headlines, claiming California could gain 2.8 million jobs, increase state and local tax revenue by $24.6 billion, and raise per capita GDP by 14.3 percent, all by 2020.

Math vs the Oil Industry

We at Next Generation found these numbers dubious at best, and turned to the state’s leading economists to truth-test the study’s claims. Jerry Nickelsburg, Senior Economist at UCLA Forecast, called the USC report’s projections, “too large to be believable.” Jesse Rothstein, former Chief Economist at the U.S. Department of Labor and Associate Professor of Economics at the University of California, Berkeley, similarly dismissed the study’s findings, writing in an email to Next Generation staff, “This report’s methods are not credible.” Olivier Deschenes, Associate Professor of Economics at UC Santa Barbara and Research Associate at the National Bureau of Economic Research, said of the study, “the methodology is not transparent,” adding that he “did not understand the methodology for the employment impacts,” despite “two hours reading” the relevant chapter.

Not content with two wildly divergent job studies already on the market, WSPA funded another analysis in 2013 of the economic potential of the Monterey Shale, this time using economists Antonio Avalos and David Vera at the California State University at Fresno. Avalos and Vera estimated the industry’s current economic impact in the San Joaquin Valley – which represents over 75 percent of total oil production, and 65 percent of total gas production in California – finding that the industry directly employed 24,576 people with an average annual income per worker of $64,579 in 2011. Including indirect and induced employment, the authors estimated the oil and gas industry supported a total of 52,271 employees in the region with an average annual income of $78,079 per worker. Compare those numbers with the LAECD’s findings: 188,500 direct employees with an average annual income of $118,643, and a total employment impact of 468,000 jobs statewide.

As for the potential of the Monterey Shale, the CSU Fresno economists projected at most 46,649 new jobs in the San Joaquin Valley by 2020 – the equivalent of just over 62,000 jobs statewide by 2020 – significantly undercutting the previous year’s USC study. Nevertheless, WSPA continued to promote the findings of the USC study despite being contradicted by its own CSU Fresno report.

Needless to say, the study released this week merits close scrutiny given WSPA’s past history of picking and choosing job numbers to suit a political agenda.  But even taking the findings at face value, the current study’s numbers raise eyebrows.  

For example, even if we believe the study’s overall job numbers, the details paint a different picture than WSPA’s rose-colored vision of expanded prosperity. According to the report, the oil industry employed 56,230 gas station employees in 2012, representing about 30 percent of its direct employment in the state. According to the U.S. Bureau of Labor Statistics (BLS), 83 percent of gas station employees in the U.S. are in non-supervisory roles, earning an average salary of just $22,362 in 2013. At that rate, nearly 47,000 Californians employed by the industry in California would have earned poverty wages for a family of four, and less than 200 percent of the official poverty line for individuals. Including supervisors and managers, the average annual salary was just $24,386. Notably, the average annual salary of gas station employees is not included in WSPA’s report (figure 2-11).

Even accounting for slightly higher gas station wages offered in California as compared with the rest of the nation, these employees fall squarely in the realm of economic insecurity. According to the California Poverty Measure established by economists at the Public Policy Institute of California and Stanford University, 91 percent of Californians live in mid- to high-cost regions of the state where the poverty thresholds range from $27,200 to $31,300. Even with two breadwinners making the average wage at gas stations in the high-cost regions of the state, a family of four would still earn less than 150 percent of the California poverty threshold.

It’s also important to note that these employees are at the pump regardless of what’s coming out of the ground in the state – whether our oil and gas comes from Kern County or Saudi Arabia, or whether they’re pumping gasoline or biofuels. The study also touts 32,670 jobs in “natural gas distribution,” which are actually jobs in the utility sector, provided by PG&E and the like. Only 15% of California’s natural gas supplies are produced in state, according to the California Energy Commission.

WSPA is once again cherry-picking a set of statistics that make for a rosy political narrative, while skewing the broader picture.

In short, the LAECD report appears to be only the latest effort to influence decision makers by grossly exaggerating the economic impact of the industry. With so many conflicting versions, and a clear motive for obfuscation, it’s little surprise WSPA is having difficulty keeping the story straight. A bit of advice from one of history’s greatest storytellers, Mark Twain: “If you tell the truth, you don't have to remember anything.”


Thanks to Paul Baer, Economist, Union of Concerned Scientists, and Peter Ferguson, intern at Next Generation.

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