A Fuller Picture of Fracking’s Impact

Fracking has been good for local economies, says Tuck professor Erin Mansur and co-authors.

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Fracking has been good for local economies, says Tuck professor Erin Mansur and co-authors.

On Jan. 24, 1848, James W. Marshall discovered glittering nuggets while helping build a sawmill for his employer, John Sutter. The ensuing California Gold Rush inspired hundreds of thousands of people to head for the West Coast in search of wealth. Although the rush yielded more than 750,000 pounds of gold, it came at the expense of widespread environmental damage, crime, and human suffering. In fact, the two men who seemed best positioned to benefit, Marshall and Sutter, were ruined.

Today, many see the rise of hydrofracturing or “fracking”—extracting natural gas via specialized drilling techniques—as a modern-day Gold Rush: lucrative yet controversial. Fracking, however, isn’t restricted to one specific area; it has been spreading across the U.S., creating many millionaires yet also causing local authorities in 24 states to prohibit the practice. The complexities of this unfolding story inspired Erin Mansur, Revers Professor of Business Administration at Tuck, and his Dartmouth co-authors James Feyrer and Bruce Sacerdote, to pen the working paper, “Where’s My Fracking Job? Geographic Dispersions of Economic Shocks from Hydrofracturing.”

“We are interested in knowing the consequences of the shale revolution on local economies throughout the United States,” Mansur says. “In particular: When you extract a dollar of value of oil and gas from these new locations, where does it go? Does it stay local? Does it have a big effect on the economy?”

In one of the first comprehensive examinations of the effects of fracking on employment, wages, and crime, the authors analyzed data from the Bureau of Labor Statistics, the Internal Revenue Service, and the energy information service DrillingInfo. The data cover nearly every U.S. county from 2004 to 2012. Rather than a general cost-benefit analysis, the authors approached their study from the perspective of local lawmakers who would be less interested in what fracking means for the United States economy than for oil and gas workers, landowners, and local businesses.

Economically, fracking had a positive effect, the authors found. For every $1 million of oil and gas extracted, the county in which the well is located sees production of $77,000 in wage income, 0.94 jobs, and $64,000 in royalty payments. Within 100 miles of a well, every $1 million generates $263,000 in wages, 2.8 jobs, and $170,000 in royalties. Perhaps most importantly, however, is that for every new mining job, there are two additional jobs in other industries: trucking and transportation, and a sector not directly related to fracking.

“This geographic dispersion pattern was what we found most surprising and interesting, not to mention how much of the money was staying in the local community,” Mansur says. “With something so capital-intensive, you might expect that most of the money will go elsewhere, but we saw about 43 percent of the overall money seems to be staying locally within 100 miles.”

Although fracking produces financial benefits, opponents raise concerns about its potential environmental implications, such as contaminated water, earthquakes, the release of greenhouse gases, and the possibility of increased crime. A number of newspaper articles have painted an alarming picture of “man-camps”: rough-and-tumble groups of male oil-and-gas workers blamed for overrunning the rural communities around the wells. But the authors don’t find statistically significant effects on various categories of property damage and violent crime in these local communities, suggesting that overall crime rates were consistent with any large population influx.

The environmental and human costs of fracking require further consideration, Mansur says, but so do its benefits, which are substantial. “With $217 billion in new production over our sample period we conclude that aggregate employment rose by 650,000 jobs due to fracking,” the authors write. “This represents 0.4 percent of the U.S. labor force and suggests that fracking significantly lowered the U.S. unemployment rate during the Great Recession.”

For many people, the word “fracking” inspires horror and outrage. And yet, its impact on economies both local and national is largely positive. Going forward, the authors say, it is important for American society to see the fuller picture of fracking’s effects—good and bad.

J. Feyrer, E. T. Mansur, and B. Sacerdote, “Where’s My Fracking Job? Geographic Dispersions of Economic Shocks from Hydrofracturing,” working paper.

James Feyrer is an associate professor of economics at Dartmouth College and Bruce Sacerdote is the Richard S. Braddock 1963 Professor in Economics at Dartmouth College.