Marcellus Shale, Dutch Disease, the War for Talent and parachute workers
Economics can be awfully counterintuitive sometimes.
There is a concept in economics called “Dutch Disease”, otherwise known as “resource curse” or more stylistically as the “paradox of plenty”. All the talk of how big the Marcellus boom is sure raises the spectre of a Dutch Disease impact across some areas of Pennsylvania. It’s already been raised as a concern for parts of Canada which have similarly been impacted by high energy prices in recent years. Natural Gas booms are not new within the US and from a few years ago at least one Wyoming paper once asked: When is Boom a Bust? All variations on a theme.
The overall veracity of Dutch Disease can be debated. It is usually, though not always, talked about in the context of developing economies. What really got me thinking about this was remembeing some papers by former CMU economist Seth Sanders and colleagues looking at the legacy impact of past energy booms on Appalachian regions. It’s hard not to think there might be analogies today. Read:
The Opportunity Cost of a High School Education: Evidence from the Coal Boom and Bust, by Dan A. Black, Terra G. McKinnish and Seth G. Sanders. April 2004
The conclusion is pretty clear that energy booms in mining communities had the impact of pulling down educational attainment rates and pulling down lifetime earnings potential. Potentially it is the human capital extension to Dutch Disease. The question is whether anything similar is part of what is happening now?
Yes, I know a lot of these jobs are highly skilled. Which brings up something I was thinking about over the weekend. Where are the mostly highly skilled workers coming from? This is more counterintuition. Think about this news story from the weekend: Airport traffic rises a 2nd straight month. I have a strong suspicion that a large part, if not all, of the 1.5% increase in number of passengers at the airport this May versus last May is being generated by Marcellus shale-related workers. As many know, most of the Marcellus shale workers are not local hires, but folks coming in on short assignments... often as short as a week at a time, from traditional oil and gas regions of the country. A lot of those folks are flying in and out of Pennsylvania through Pittsburgh and are showing up in the numbers. Flying in and out like that generates a lot of passenger-trips.
Let's add up some numbers. The story says the May 2010 passengers at the airport came to 709 thousand. The 1.5% increase eqates to 10,600 more trips over the course of a month. On average about 350 a day. Could there be 350 Marcellus workers flying in or out of Pittsburgh each day? If for sake of parsing you assume they are here on week long stints, it works out to 2,500 itinerant workers at any given time. Given all the news headlines is that an unreasonable number? Headines have us thinking that number is several times higher. Bottom line, I'd love to see detailed data on where passenger originations arriving in Pittsburgh have increased over the last year to be generating this newsworthy 1.5% increase in local traffic at the airport. If that all works out, is the interpretation of the airport passenger trends the same as it may appear? It's a question worth asking.