Jun 07 2007

Rough necks and rig hands: Wyoming’s booming gas industry

Natural gas in Wyoming | Boom and doom | Economist.com

From the latest Economist: an article about the booming natural gas industry in rural Wyoming (as if there’s such a thing as urban Wyoming) and the impact it’s having on the economy of one small town.

You’d think a booming industry offering high wages for low-skilled workers would be a godsend for a remote Western town like Pinedale, Wyoming. Think again; this article points out some of the downsides resulting from the natural gas boom since 2000, when oil shortages led to an increase in the price of gas and lots of new drilling in Wyoming, America’s least populated state.

Pinedale is at the centre of a Rocky Mountain gas boom that began in 2000 and accelerated five years later after Hurricane Katrina knocked out Gulf supplies, forcing up prices. On a mesa south of Pinedale, Wyoming’s busiest field is laced with dirt roads and pock-marked with well-heads and drilling rigs.

The influx of gas workers has increased the population of the area by 40% since 2000. The new business has meant more tax revenues for the county, “In 2001 Sublette county raised $16m in sales and other taxes. Last year it took in $53m.” What does all this mean for residents of Pinedale and the surrounding county? Higher wages and low unemployment.

Next year Pinedale’s school district will pay newly qualified teachers a base salary of $43,000—about the same as in Chicago.Teachers nonetheless earn less than rig hands, most of whom have no more than a high-school education. They are paid at least $49,000 plus overtime, according to a survey last year. The ready availability of well-paid work, albeit hard and dangerous, means that unemployment has almost disappeared (see chart). So have seasonal fluctuations. Jobs used to disappear when the snow fell. But the gas rigs now keep going through the winter.

The wage hikes enjoyed by government employees and gas workers, while good for some, means doom for local businesses not directly linked to the gas business, for whom the tight labor market makes it increasingly difficult to operate. The housing market has also experienced a shock since the gas boom, as properties away from the gas fields have barely increased or even decreased in value.

The interesting connection I see in this article to our Economics course lies in the affect of low unemployment and high wages on the business environment. See if you can identify the connection through the questions below.

Discussion Questions:

  1. What led to the increased drilling for natural gas in 2000? Which determinants of demand and supply led to the changes experienced in the oil and natural gas industries?
  2. What kind of labor market is the Wyoming gas industry most like, perfectly competitive or monopsonistic? How do you know?
  3. Are gas companies in Wyoming wage takers or wage makers? What’s the difference?
  4. If low unemployment and high wages are assumed to be good, then why does the article indicate that they are actually bad for some in Pinedale?
  5. Why has “the number of retail and entertainment outfits in Sublette county” fallen “even as disposable income soared”?

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About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

5 responses so far

5 Responses to “Rough necks and rig hands: Wyoming’s booming gas industry”

  1. manonon 22 Jul 2007 at 9:27 pm

    1. In 2000, there were oil shortages, meaning that the quantity of oil demanded exceeded the quantity of oil which was being supplied. This meant that prices either had to be increased in order to decrease the quantity demanded (with the law of demand) or more oil had to be drilled to make up for the high quantity demanded.

    2. The labor market in the Wyoming gas industry is most likely perfectly competitve. This is apparent due to the fact that the population of Sublette county drastically increased at the time of the gas boom, indicating low barriers to entry and a large amount of competitiveness.

    3. Gas companish in Wyoming seem to be wage takers, as they were able to increase their tax revenue by such a large amount by 2006. (i don't know, we didn't learn this :))

    4. Low unemployment and high wages are usually regarded to be good for a country's economy. However, in this case, there was solely low unemployment and high wages in the gas-sector of the economy, while other sectors of the economy completely unrelated to gas and oil perished. Furthermore, high wages make it difficult for businessmen to start up their own business as high costs deminish the opportunities for high profits.

    5. The number of retail and entertainment outfits in Sublette county have fallen even as disposable income soared due to the fact that all sectors of the economy unrelated to gas or oil were "in paralysis".

  2. Howard Linon 12 Aug 2007 at 11:17 pm

    1. When there was a shortage of gas in year 2000, people must find other way of supplying energy. In Wyoming, it happens to be the development of natural gas. When there is a low supply and a high demand, then it will cause inflation.

    2. As the graph has shown, the labor market in Wyoming gas industry is most likely to be perfectly competitive in the future, because of the low skilled labor and high wages, the recent increase of population by 40%, and the unemployment percentage close to only one percent, everyone would want to come to this place to work. It will then start to be incredibly competitive, and the wage will slowly drop down again.

    3. I assume wage takers don't (or don't need to) put a lot of effort into their work, and wage makers are the ones that earns what they deserve. Base on that definition, the natural gas workers would be wage takers.

    4. There is always a positive and negative side. If Wyoming has a low skilled labor and high wages, then some other place would be the exact opposite. When one business blooms, another will suffer. It all happens in a chain reaction.

    5. It would create a lot of problems because when a labor worker sees labor workers from other companies earn two to three times more than them, it can easily be a disaster. It might cause a union strike…etc. This is why “the number of retail and entertainment outfits in Sublette county” fallen “even as disposable income soared”.

  3. […] it, ships and pipelines to transport it) and labor (engineers to design the rigs and drills, roughnecks to work the rigs, and perhaps most importantly, highly skilled scientists): Over a quarter of the […]

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    Rough necks and rig hands: Wyoming?s booming gas industry | Economics in Plain English