Great Video by WV Kids Count

Tax and They Will Come

Richard Caldwell, a Wheeling native and the vice president for the Appalachian region of Audubon Engineering, said Charleston was chosen because of the availability of skilled and experienced workers. Availability of the Marcellus Shale natural gas reserve also was a contributing factor in the decision to come to West Virginia, he said.

Last week, we issued a policy memo highlighting the lack of empirical evidence in the Marshall University study that concluded  state and local taxes rates are a significant factor in business location decisions. The news that Audubon Engineering, a natural gas and oil consulting firm, is locating in Charleston, WV confirms why the “don’t tax and they will come” argument is largely baseless. As we’ve shown in the past, there is no obvious correlation between state and local taxes and state job/gsp growth. If West Virginia taxes are so high and uncompetitive, why didn’t Audubon Engineering locate in Ohio or Pennsylvania? This is not to suggest that taxes do not matter. They matter. Just not as much as industry wants you to believe. They are a small part of the cost of doing business and they are deductible against the federal corporate income tax. As former Alcoa CEO and US Treasury Secretary Paul O’Neill said:

As a businessman, I never made an investment decision based on the Tax Code…(I)f you are giving money away I will take it. If you want to give me inducements for something I am going to do anyway, I will take it. But good business people do not do things because of inducements, they do it because they can see that they are going to be able to earn the cost of capital out of their own intelligence and organization of resources.

Monday Morning Catch Up: Natural Gas, Small Businesses, and State Budget Transparency

On Sunday, the NYTimes ran an insightful and well written op-ed by Seamus McGraw on his regrets of leasing his Pennsylvania land to a natural gas company. McGraw, who is the author of ‘The End of Country”, summed up his thoughts here:

Standing there in what used to be our pasture on that light summer night, watching as the machinery of progress blasted the rock a mile beneath my feet, I realized that was what scared me the most. Not that this was inevitable, but that its impact depended so much on me, on whether I had the character to come out from behind the convenient shield of “are you for it or against it” ideology and find the strength, the will and the means to do what I can to make sure this is done in the best way possible.

I still don’t really know the answer.

As readers may know, the benefits from the Marcellus Shale gas drilling might be a mixed bag unless the state takes a long-term view. One of the last things the state should be doing is worrying about over taxing the industry, which has little effect on production and employment.

On an unrelated subject, Jared Bernstein with the CBPP has an op-ed in today’s NYTimes dispelling the myth that small businesses are the engine of employment and economic growth that politicians often pontificate about. Berstein concludes:

The next time a politician tells you how he or she is for small business (which will likely be the next time you hear a politician say anything), be mindful that to the extent that size matters at all for job growth, it’s really about new companies that will start small and, if they survive, perhaps grow large. Everything else is largely noise — and too often, noise that has little to do with what this economy really needs.

Speaking of the CBPP, they just released a new report highlighting that only 22 states produce a “current services baseline” budget that “gives an honest assessment of the state’s overall fiscal health by enabling policymakers to see if the state will likely have enough resources to maintain services at current levels — or possibly expand them.” As you can tell from the map below, West Virginia does not produce a current services baseline budget that meets this criterion. While West Virginia does produce a 6-year financial plan (see pages 10-19), it starts from the governor’s recommendations rather than the current year’s enacted budget.  Therefore,  it doesn’t really reflect the cost of continuing current services, so much as the long-term cost of enacting the governor’s recommendations.

Marshall Gas Tax Study Proves Virtually Nothing

Today’s Daily Mail reports on a study from the Marshall University Center for Business and Economic Research, warning that West Virginia’s high tax burden on the natural gas industry could hurt the development of the natural gas industry. Reading carefully, one may notice a lot of “maybes” “mights” and “coulds” in the report’s conclusions. Let’s take a closer look, and see if there is another point of view.

First off, the study’s author, Dr. Calvin Kent, states, “West Virginia places more taxes and fees on natural gas production than most of the other states which were studied.” However, more taxes doesn’t necessarily translate into a higher tax burden. And the report doesn’t actually determine if the taxes do create a heavier burden. Taxes almost always have exemptions, credits, and varying effective rates that affect their burden. Just listing the types of taxes and their statutory rates doesn’t tell you anything about the actual tax burden. Saying that they could create more of a burden is just as true as saying that they may not. 
For example, we’ve looked at severance taxes, showing that while West Virginia has a statutory 5 percent rate on the production value of coal, oil, and natural gas, various exemptions, credits, and limits gave the state an effective rate of 3.2 percent in 2007. Using the rate of 5 percent to compare West Virginia’s burden to other states would be inaccurate.
So while its inconclusive if West Virginia’s tax burden is actually any higher than other states for the natural gas industry, has it had any negative effect on the industry? The report says that it is too early to determine if the state’s taxes are creating a barrier to the development of the Marcellus Shale. But it certainly didn’t hurt last year. In 2010, West Virginia led the country in the number of new wells drilled. And, despite the lack of a severance tax, Pennsylvania drilled less than half (833) the number of new wells as West Virginia (1,896).
Another interesting way the report’s conclusions are framed can be found in the following phrase, “There are many factors which determine location, but, holding other things equal, state and local taxes will be an influential factor.” What does holding other things equal mean? It means holding equal all the things that matter more to businesses than taxes. Sure, if the costs of labor, transportation, utilities, materials, and equipment were all equal, and the distribution of gas was even and the geography the same in every state with drilling, then taxes would be an influential factor. But that is not the case and never will be the case.
For example, just consider differences in labor costs. I’ve shown before that even minor differences in wages between states can offset major differences in taxes. For example, a 5% decrease in total business taxes paid in West Virginia would be offset by only a $0.15 increase in average hourly wages.
Let’s compare West Virginia and Pennsylvania again. There are about 13 construction and extraction occupations identified by the occupational employment statistics system from the BLS as working in the natural gas industry. Here are the employment and wage numbers for West Virginia in 2010.
WV Employment and Wages in Construction and Extraction Occupations
Source: Bureau of Labor Statistics
While not every employee listed works in the natural gas industry, the list covers the employees most associated with the industry. Overall about $1.22 billion in wages were paid to these employees in 2010.
But West Virginia is a low cost-of-living state. Businesses, like those in the natural gas industry, can pay lower wages to employees in West Virginia. Just take a look at the average annual wage for the natural gas occupations in Pennsylvania.
PA Wages in Construction and Extraction Occupations
Wages in Pennsylvania are generally higher for most of the occupations associated with the natural gas industry, but not shockingly higher. But what would happen if the average Pennsylvania wages were applied to the number of employees by occupation in West Virginia. Businesses would be paying about $1.287 billion in wages, about $64.8 million more than they actually paid. And that is actually less than the amount the natural gas industry paid in severance taxes in West Virginia in 2010 (about $55.6 million). None of this is to say that lawmakers should pursue a race to the bottom on taxes, wages, and regulations, it just reflects a better understanding of the cost of doing business.
Finally, the report state’s that, “Experience shows that taxes and other fees do play a part in where drilling, extracting and manufacturing of gas transpires. The natural gas field does not respect state boundaries. By placing wells near state borders, gas from one state can be easily transported to another. Gas processing and manufacturing businesses usually gather near drilling sites, and for that reason close parity, particularly with surrounding states, is desirable.” 
That experience, however, seems to be more an article of faith rather than actual experience. This report looked at the experiences of Montana and Wyoming in the late 1990s. At the time, energy exploration and production was flat in both states, energy prices were low, and both were looking for ways to jump-start the economy.
Montana lowered production tax rates and added new incentives for new production. Wyoming issued two studies that found that tax incentives would not stimulate activity, and decided to eliminate a severance tax reduction passed the previous year. As a result, the overall tax rate on the oil and gas industry was 50% higher in Wyoming than in Montana.
So how did higher taxes affect the industry in Wyoming compared to Montana? Between 2000 and 2006, Wyoming added over $10 billion in production value, while Montana only added $2 billion. New drilling continues at a faster pace in Wyoming and the state is a leading energy producer. The report concludes that there is little evidence to suggest the industry fled Wyoming to move to Montana to avoid the high tax burden.
Wyoming’s finances benefited as well, as revenue grew by 335% from 2000 to 2006, compared to 280% in Montana. The Department of Revenue in Montana concluded that new tax incentives cost the state $515 million in lost revenue from 2003 to 2007.
The main message? Tax policy is only one of many factors that influence the natural gas industry’s exploration and production, and a small one at that. 
In the final analysis, the Marshall study doesn’t show that West Virginia’s tax burden is higher than other states, nor does it show that a high tax burden significantly influences the industry when deciding where to produce. Focusing too much on tax policy distracts from other important issues that need our attention. We need to focus more on how the state can mitigate environmental impacts, boost employment of in-state residents, and how we can be better positioned once the energy boom ends and the resources are depleted.

Dispelling the “Tax Cuts Pay for Themselves” Shannigans Once and for All

Over the years, the Center has written tirelessly about the evangelical belief many media pundits, policymakers, and lobbyists have about the magic of tax cuts. In particular, the belief about tax cuts “paying for themselves.” There is zero – I repeat – zero empirical evidence that tax cuts generate so much economic activity that revenues expand. As the British say, this is pure poppycock.  This is especially true at the state level, where states have to balance their budgets.

As Simon Johnson points out in the NYT, you can’t even make the “tax cuts pay for themselves” argument stick  if you use the work of only conservative economists.

Can Tax Cuts Pay for Themselves?


Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

Can tax cuts “pay for themselves,” inducing so much additional economic growth that government revenue actually increases, rather than decreases? The evidence clearly says no.

Nevertheless, a version of this idea, under the guise of “dynamic scoring,” has apparently surfaced in the supercommittee charged with deficit reduction — the joint Congressional committee with 12 members. Dynamic scoring sounds technical or perhaps even scientific, but here the argument means simply that any pro-growth effect of tax cuts should be stressed when assessing potential policy changes (e.g., reforming the tax code). For anyone seriously concerned with fiscal responsibility, this is a dangerous notion.

Economists disagree about almost everything, of course, and the effect of tax cuts is no exception. One reasonable way to assess the evidence is to begin with the highest plausible effects, then see what happens if some of the more extreme assumptions are relaxed (this is a nice way of saying that we don’t believe everything the authors are trying to tell us).

I would start with a study by Gregory Mankiw, former chairman of George W. Bush’s Council of Economic Advisers – and therefore presumably on the tax-cutting side of American politics – and Matthew Weinzierl (published in The Journal of Public Economics in 2006 and, unfortunately, available only to subscribers) that shows the economic growth caused by a tax cut can offset, at best, a portion of the revenues lost by that tax cut.

Specifically, Professors. Mankiw and Weinzierl calculated that 32.4 percent of the “static” or direct revenue loss of a capital-gains tax cut and 14.7 percent of the static revenue loss of a labor tax cut could be offset in present-value terms by additional growth, ignoring short-term Keynesian effects (i.e., any immediate stimulus provided to the economy).

Now 32.4 percent is a lot, but it is far less than 100 percent. And a critical assumption for Professors Mankiw and Weinzierl is that government spending falls to keep the budget in balance. In their framework that’s a good thing — as they are effectively assuming away the consequences of any productive effects of government spending (e.g., what if less spending on schools means less education and this hurts “human capital” and therefore productivity down the road?).

Sticking for a moment with just with their view of the world, if instead the tax cuts are financed by additional deb t, as was our collective experience during the 2000s, the ultimate effect ofthose cuts can be to lower economic growth in the long term, depending on whether the larger debt eventually leads to lower government transfers, lower government consumption, higher taxes on capital or higher taxes on labor. (Eric M. Leeper and Shu-Chun Susan Yang discuss this in “Dynamic Scoring: Alternative Financing Schemes,” also in The Journal of Public Economics, in 2008.)

More broadly, in 2005, the Congressional Budget Office, then headed by a Republican appointee, Douglas Holtz-Eakin, estimated that the economic effects of a 10 percent cut in income taxes would offset from 1 to 22 percent of the revenue loss in the first five years; in the following five years, the economic effects might offset up to 32 percent of the revenue loss, but might also add 5 percent to the revenue loss. This is an entirely reasonable assessment — the budget office exists to provide balanced analysis for the budget process. The bottom line is that betting that tax cuts will pay for themselves is a high-risk strategy and not a good idea at our current levels of government debt relative to gross domestic product. We do not have a large margin for error.

(Disclosure: I’m on the Panel of Economic Advisers for the the budget office, but I didn’t have anything to do with that study.)

Of course, economic studies do not necessarily have a direct effect on political discourse. For example, President George W. Bush asserted in 2007, “It is also a fact that our tax cuts have fueled robust economic growth and record revenues.” But this is nothing more than an assertion. Growth during the 2001-7 expansion was only 2.7 percent compared, for example, with 3.7 percent during the 1990s expansion (when tax rates were higher).

And much of the growth during the Bush period turned out to be illusory; it was based on our corporate and national accounting system, which measures profits (an important part of G.D.P.) but not on a risk-adjusted basis. When the risks materialized in the  financial crisis of 2008-9, we lost so much output that G.D.P. per capita in real terms today is only at about the level of 2005.

To assess growth properly, you should look “over the cycle,” meaning roughly 10 years for the modern American economy. It is hard to argue that the last decade was any kind of growth success. Of course, other things happened during the 2000s, including further financial sector deregulation not directly related to the tax cuts.

That’s why we have the economic analysis, particularly by the budget office, to disentangle what tax cuts can really do. If the supercommittee buys into dynamic scoring for tax cuts, at best this would be wishful thinking. At worst, it would represent yet another round of fiscal irresponsibility at the top of American politics.

And if people are seriously considering altering the rules under which the the budget office operates, they should stop and think again. Changing the score-keeping guidelines at this stage would amount to undermining the credibility of the office, one of the few remaining impartial and well-informed observers of the nation’s economy.

Perhaps this strategy might yield some short-term political gains, but the damage to  our creditworthiness would be immense, and the consequences would be felt sooner rather than later.

The nightmare downward spiral and fiscal implosion in the euro zone began with a few countries cheating on their numbers — first to get into the currency union and then to avoid various forms of official criticism. We do not want to start down the same path.

The Middle Class has Missed Out

Last year, I did a couple of posts about rising income inequality and the struggles of the middle class. Today, I want to look at a similar topic, how much of the past few decade’s economic growth has been felt by the middle class.

I’ll do this by comparing different measures of economic growth with growth in real median household income. Median household income measures the income of the typical household – or the household in the middle of the income distribution – and serves as a good indicator for how the middle-class is faring. First we’ll start with West Virginia.

WV Growth 1984-2010

Source: U.S. Bureau of Economic Analysis and Census Bureau

West Virginia’s GDP (after adjusting for inflation) grew 46% from 1984 to 2010. Personal income grew right along with the economy, increasing by 49%. As the economy grew, the state’s population declined, allowing per capita personal income to grow at a higher rate, 55%.

However, median household income grew at nearly half the rate as the rest of the economic indicators. How was it that per capita personal income grew at such a higher rate than median household income? The gains associated with the economic growth of the past decades were not shared. When the average (or per capita) grows faster than the median, that means the growth has been concentrated at the top. 

One clear sign of this disparate growth is in wages. The real median wage in West Virginia grew 16% from 1984 to 2010, while wages for the top 10% of wage earners grew by 26%.

The picture at the national level is even more stark.

US Growth 1984-2010

Source: U.S. Bureau of Economic Analysis and Census Bureau
The national economy has grown by 85% since 1984, and personal incomes have grown 90%. However, a good deal of that growth was simply due to population growth, as per capital personal income only grew by 45%. Most distressing is the lack of growth in median household incomes, which only grew by 10%. So while the nation’s total income nearly doubled, the middle class saw almost nothing.
Again, wages play an important role in the disparity. The national median wage grew by 11% from 1984 to 2010, while wages for the top 10% grew by 28%. 
Our economy didn’t always look like this. For decades, as the economy grew, prosperity was widely shared. But for over 30 years now that has no longer been the case, and the rising tide has not lifted all boats. As we struggle to come out of this recession and restart the economy, we would be wise to take steps to make sure the growth and prosperity are shared. An economy that expands but in doing so leaves behind the vast majority of those working in it may be a growing economy, but it is not a healthy economy.


New Study Shows No “Free Market” in Energy Development

This past Friday we talked about the illusions that some people have about the role of government in the “free market.” Another wrinkle in the free market mythology is how the federal government supports what Alexander Hamilton called “infant industries” with direct investments, subsidies and tariffs. This is especially true when it comes to the energy market.

A new study by Nancy Pfund of DBL Investors and Ben Healey of Yale University shows us that federal subsidies have played a large role in guiding America’s energy economy over the last 200 years. In particular, Pfund and Healey quantify and compare how federal subsidies for earlier energy transitions in coal, oil, gas, and nuclear compare to our current commitment to renewables. What they find is not that surprising, especially if you’ve been keeping up current trends in the economic literature:

 Our findings suggest that current renewable energy subsidies do not constitute an over-subsidized outlier when com- pared to the historical norm for emerging sources of energy. For example:

–   As a percentage of inflation-adjusted federal spending, nuclear subsidies accounted for more than 1% of the federal budget over their first 15 years, and oil and gas subsidies made up half a percent of the total budget, while renewa- bles have constituted only about a tenth of a percent. That is to say, the federal commitment to O&G was five times greater than the federal commitment to renewables during the first 15 years of each subsidies’ life, and it was more than 10 times greater for nuclear.

–   In inflation-adjusted dollars, nuclear spending averaged $3.3 billion over the first 15 years of subsidy life, and O&G subsidies averaged $1.8 billion, while renewables averaged less than $0.4 billion.

The study also looked at how the federal government currently subsidizes the coal industry. Between 2000 and 2009, they found that the capital gains treatment of royalties on coal have totaled $1.3 billion in federal tax expenditures.

Pfund and Healey also look at the historical role of direct spending and development initiatives by the US government in the 19th century on behalf of the coal industry, including tariffs, the redistribution of land (e.g. Homestead Act of 1862) and natural resources, and the building of railroads and ports for distribution. 

At the state level, they found that states propped up the coal industry by exempting coal from taxation, granting corporate charters only to coal companies, and by sponsoring geological surveys to identify coal seams for the industry.
(As we pointed out last year, the state of West Virginia also heavily subsidizes the coal industry with preferential tax treatment and other expenditures).

The authors conclude:

Suffice it to say, domestic coal did not arrive on the scene as a mature, low-cost and competitive fuel source. Rather, government support over many years helped to turn it from a local curiosity in Schuylkill County, Pennsylvania into the domi- nant fuel source of its time. 

None of this is to say that government should not have invested and developed the coal industry over the last 200 years. The point is we need to recognize the historical and important role government has had in the development of new, infant energy industries so we can understand why it is so important that government help development new energy industries.  As Pfund and Healey conclude:

Throughout our history, energy incentives have helped drive critical innovation, speed U.S. economic transitions, and helped shape our national character. Today, as we seek to move towards a more independent and clean energy future, the truth is that renewables—from a historical perspective—are if anything under-subsidized. This weak support is inconsistent with our nation’s own historical energy narrative, which suggests:

Today’s market for cheap power results in part from substantial investment by the federal government in innovative technology.

It takes a substantial amount of money, invested over several years, to bring an electricity generation technology to maturity.

Although energy subsidies can and do serve many policy purposes, the most basic relate to furthering the development and commercialization of technolo- gies deemed to be in the public interest.

Free Market Fantasy Friday

The State Journal published a piece by former WV Delegate Pat McGeehan where he says that the only way to create jobs in the Mountain State is “[I]f Government Gets out of the Way.” He lists the usual conservative/libertarian ideas of less regulation, protect private property, abolish the income tax, and decentralize government.  As my friend Dean Baker says, “money does not fall up.” Therefore, you need to create policies that push it up from the poor and middle class to the rich. These policy prescriptions have been around for decades and have recently resulted in the largest rise in income inequality since the 1920s.

The real irony is that conservatives like McGeehan love government every bit as much as liberals and progressives. They just want to use it to distribute money upward to benefit their friends and themselves. Case in point. McGeehan works for Frontier Communications. Frontier received $40 million from the federal stimulus (ARRA) last year to expand broadband access in West Virginia. In a free market, broadband would take care of itself and Frontier would reject the money out of principle. But that is not what we see. There are tons of examples just like this one. Just read this book, this book, this book, this book, and this book.

Another irony is that McGeehan went to the U.S. Air Force Academy. The armed forces are not a product of the “free market” or decentralized government, it is about the closest thing to communism as you can get.   (however, some principled libertarians would like to reduce the size of the military.) 

In terms of economic development, the military industrial complex is responsible for most of the technological innovation in today’s knowledge-based economy, including fiber optic cable, transistors, semi-conductors, nuclear power, the laser, Internet, computers, microchips, and on and on. Drug research, is also dominated by the public sector.

As President Bill Clinton noted in 2000:

Many of the products and services we have come to depend on for our way of life in America – the Internet, the Global Positioning System (GPS), lasers, computers, magnetic resonance imaging (MRI), teflon and other advanced materials and composites, communications satellites, jet aircraft, microwave ovens, solar-electric cells, modems, semiconductors, storm windows, genetic medicine and biotechnology, and many others – are the products of Federal R&D investments made over the past 50 years.

You can like or dislike government involvement in the economy, but let’s have an honest discussion about the role of government in economic development. Chances are, once you see past the theoretical and binary logic of the “no government” people and look at their policy ideas, like abolishing the state income tax, they are nothing more than redistributing wealth upward. Our state income tax is progressive and it brings in $1.6 billion in taxes revenues or about 40% of our state General Revenue Budget. Without this money, the state would have to make unimaginable cuts in public schools and universities, health care for children and seniors, and public safety. Does this sound like a good way to create jobs in West Virginia? Laying off teachers, robbing children of an education and health care, and drastically increasing college tuition? Yea, that sounds like a great way to bring prosperity to the state.

Drilling Down into Natural Gas Employment

West Virginia’s natural gas industry has received significant attention in the past few years, particularly with the development of the Marcellus Shale. The increase in attention and activity has led to an increase in jobs in the industry, but what exactly are the jobs and are they all reacting to the Marcellus boom equally?

In their report on the economic impact of the natural gas industry, WVU’s Bureau of Business and Economic Research identified 7 oil and natural gas NAICS industry sectors, which included:

  • 211 Oil and gas extraction
  • 213111 Drilling oil and gas wells
  • 213112 Support activities for oil and gas operations
  • 2212 Natural gas distribution
  • 23712 Oil and gas pipeline construction
  • 333132 Oil and gas machinery and equipment manufacturing
  • 48621 Pipeline transportation of natural gas

Of these 7 industry sectors, all but 213111 Drilling oil and gas wells have employment numbers available from WorkforceWV. The following charts track quarterly employment numbers for each available industry sector since 2005. We’ll start off with the total for all of the natural gas industry sectors. Definitions for each NAICS sector from the Census Bureau are also included.

Total natural gas employment grew steadily from 2005 to late 2008, when the effects of the recession hit West Virginia. Between 2005q1 and 2008q3, total natural gas employment grew from 6,656 to 9,632, a remarkable increase of 44.7%. Employment fell below 8,000 during the recession, but has resumed growth in the past year. Total employment in 2011q1 stood at 8,912, an 33.9% increase from 2005.

211 Oil and Gas Extraction
Industries in the Oil and Gas Extraction subsector operate and/or develop oil and gas field properties. Such activities may include exploration for crude petroleum and natural gas; drilling, completing, and equipping wells; operating separators, emulsion breakers, desilting equipment, and field gathering lines for crude petroleum and natural gas; and all other activities in the preparation of oil and gas up to the point of shipment from the producing property. This subsector includes the production of crude petroleum, the mining and extraction of oil from oil shale and oil sands, and the production of natural gas, sulfur recovery from natural gas, and recovery of hydrocarbon liquids.


Oil and gas extraction is the main natural gas industry sector, and employing 2,130 in 2011q1. However, this particular industry sector has been steadily declining since its peak in 2008, and is nearly back down to its employment level of six years ago. And, as the next section shows, oil and gas extraction has been surpassed by support activities as the largest natural gas sector employer.

213112 Support Activities for Oil and Gas
This U.S. industry comprises establishments primarily engaged in performing support activities on a contract or fee basis for oil and gas operations (except site preparation and related construction activities). Services included are exploration (except geophysical surveying and mapping); excavating slush pits and cellars, well surveying; running, cutting, and pulling casings, tubes, and rods; cementing wells, shooting wells; perforating well casings; acidizing and chemically treating wells; and cleaning out, bailing, and swabbing wells.


While the oil and gas extraction sector has been in a steady decline the past three year, the support activities sector has bounced back from its recession induced decline. This sector employed 3,440 in 2011q1, an increase of 97.2% from 2005. The support activities sector is also the largest natural gas sector, surpassing the oil and gas extraction sector in number employed in 2007.

2212 Natural Gas Distribution
This industry comprises: (1) establishments primarily engaged in operating gas distribution systems (e.g., mains, meters); (2) establishments known as gas marketers that buy gas from the well and sell it to a distribution system; (3) establishments known as gas brokers or agents that arrange the sale of gas over gas distribution systems operated by others; and (4) establishments primarily engaged in transmitting and distributing gas to final consumers.

The natural gas distribution sector has been relatively flat compared to the overall natural gas industry, staying slightly below 1,000 from 2005 to 2010. The sector experienced a sharp drop in 2010q1, from 904 to 732, and has remained between 730 and 750 since then.

23712 Oil and Gas Pipeline Construction
This industry comprises establishments primarily engaged in the construction of oil and gas lines, mains, refineries, and storage tanks. The work performed may include new work, reconstruction, rehabilitation, and repairs. Specialty trade contractors are included in this group if they are engaged in activities primarily related to oil and gas pipeline and related structures construction. All structures (including buildings) that are integral parts of oil and gas networks (e.g., storage tanks, pumping stations, and refineries) are included in this industry.


While the pipeline construction sector has experienced the most growth since 2005 (558 in 2005q1 to 1,154 in 2011q1, an 106.8% increase) it has also been the most volatile, with many peaks and valleys. Employment in this sector fell to 734 as recently as 2010q1 before spiking to 1,737 in 2010q3.

333132 Oil and Gas Machinery and Equipment Manufacturing
This U.S. industry comprises establishments primarily engaged in (1) manufacturing oil and gas field machinery and equipment, such as oil and gas field drilling machinery and equipment; oil and gas field production machinery and equipment; and oil and gas field derricks and (2) manufacturing water well drilling machinery.



The oil and gas machinery and equipment manufacturing is the smallest of the natural gas employment sectors, with only 42 employees in 2010q2, the most recent quarter with data available. the numbers on this sector are spotty, with some large gaps, but there seems to be a decline since 2008, when employment peaked at 87 in 2007q3.

48621 Pipeline Transportation of Natural Gas
Industries in the Pipeline Transportation subsector use transmission pipelines to transport products, such as crude oil, natural gas, refined petroleum products, and slurry. Industries are identified based on the products transported (i.e., pipeline transportation of crude oil, natural gas, refined petroleum products, and other products). The Pipeline Transportation of Natural Gas industry includes the storage of natural gas because the storage is usually done by the pipeline establishment and because a pipeline is inherently a network in which all the nodes are interdependent.


Like the natural gas distribution sector, the pipleline transportation sector has been relatively flat during the Marcellus boom. Employment jumped from around 1,400 to over 1,600 in 2008, but has since come back down. With the exception of the bubble, employment in the pipeline transportation sector has stayed around 1,400 since 2005.

In conclusion, while overall employment in the natural gas industry has grown substantially since 2005, most of those gains have been limited to the support activities and construction sectors. Even then, employment in the construction sector has proven to be volatile, with major swings in employment numbers. Other sectors have remained flat during the Marcellus boom, with the oil and gas extraction sector experiencing a steady decline since 2008.