Labor Market Impacts of the 2010 Deepwater Horizon Oil Spill and Off Shore Drilling Momentum by Joseph E

August 2014 Labor Market Impacts of the 2010 Deepwater Horizon Oil Spill and Off shore Drilling Momentum By Joseph E. Aldy (Harvard Kennedy School) Introduction two events, while inland areas were This Policy Brief is based on “The Labor On April 20, 2010, the Transocean expected to be largely unaffected. The Market Impacts of the 2010 Deepwater moratorium was expected to affect Horizon Oil Spill and Off shore Drilling Deepwater Horizon suffered a Moratorium” working paper by Joseph Louisiana – with signifi cant support E. Aldy at http://www.nber.org/papers/ catastrophic blowout while drilling w20409. in a BP lease in the Gulf of Mexico’s of the offshore drilling industry – but Joseph E. Aldy Macondo Prospect. This accident not, for example, Florida, which had resulted in the largest oil spill in U.S. no active drilling off of its coastline. Joseph E. Aldy is an Assistant Professor of The timing and magnitude of the spill Public Policy at the John F. Kennedy School history and an unprecedented spill of Government at Harvard University, a response effort. Due to the ongoing response varied across the states over Nonresident Fellow at Resources for the the course of the spill as well. Future, and a Faculty Research Fellow at the spill and concerns about the safety National Bureau of Economic Research. He of offshore oil drilling, the U.S. Taking advantage of the unexpected is also the Faculty Chair for the Regulatory Policy Program at the Mossavar-Rahmani Department of the Interior suspended nature of these events, I estimate Center for Business and Government. His offshore deep water oil and gas the net effects of the spill, the spill research focuses on climate change policy, energy policy, and mortality risk valuation. drilling operations on May 27, 2010, response and the moratorium on Gulf in what became known as the offshore Coast employment and wages. Despite © 2014 by the President and Fellows of Harvard College. The contents refl ect the drilling moratorium. The media predictions of major job losses in views of the author (who is responsible for the facts and accuracy of the research portrayed the impacts of these events Louisiana resulting from these events, herein) and do not represent the offi cial on local employment, with images I fi nd that the most oil-intensive views or policies of the The Taubman Center for State and Local Government. of closed fi sheries, idle rigs, as well parishes in Louisiana experienced as boats skimming oil and workers a net increase in employment and cleaning oiled beaches. wages. In contrast, Gulf Coast Florida A. Alfred Taubman Center for State and Local Government In “The Labor Market Impacts of the counties south of the Panhandle Harvard Kennedy School experienced a decline in employment. 79 John F. Kennedy Street 2010 Deepwater Horizon Oil Spill Cambridge, MA 02138 and Offshore Drilling Moratorium,” Analysis of the number of business establishments, worker migration, 617-495-2199 the paper this policy brief is based www.hks.harvard.edu/centers/taubman on, I examine the net impact of the accommodations industry employment oil spill, the drilling moratorium, and wages, sales tax data, and and spill response on employment commercial air arrivals likewise show and wages in the Gulf Coast. The positive economic activity impacts spill and moratorium represented in the oil-intensive coastal parishes unexpected events in the Gulf Coast of Louisiana and reduced economic region. The economic impacts of activity along the Non-Panhandle these events varied within and among Florida Gulf Coast. the Gulf states. Coastal counties and These results yield several policy parishes were expected to bear the implications. First, a signifi cant infl ux vast majority of the effects of these of resources appears to have offset Labor Market Impacts of the Deepwater Horizon Oil Spill TAUBMAN CENTER POLICY BRIEFS much of the adverse impacts of the spill. This potential job losses in the tens of thousands, implies that the spill response was similar due to the spill’s anticipated negative impact on to a conventional fi scal stimulus, in that it fi shing, recreation, and tourism. created jobs and economic activity. Second, Within a week of the U.S. government’s the ambiguity about the length of the drilling announcement of the May 27 drilling moratorium may have mitigated some of its moratorium, representatives of the oil and adverse impacts. Given the uncertainty, rig gas industry highlighted potentially large owners may have decided to hold off before employment losses. The Louisiana Mid- taking any drastic action such as mass layoffs Continent Oil and Gas Association identifi ed or moving rigs to other regions of the world. potential job losses in excess of 30,000. And third, ex-ante (forecasted) analyses of the In June, several economists at Louisiana drilling moratorium that did not characterize State University independently estimated the complexity and temporal attributes of moratorium-related job losses in the range of the economic shocks to the region – such as 10,000 – 20,000 for the state of Louisiana. the spill and spill response – may have been The U.S. government also employed regional uninformative and potentially misleading for multiplier models in two analyses: an internal policy deliberations. Department of Interior assessment in July The next section describes the predicted labor reportedly estimated job losses in excess of market impacts reported in the media during 23,000, while an interagency working group the spill and moratorium in 2010. Next, I report published in September estimated present the empirical strategy, followed by the job losses in the 8,000 – 12,000 range. John empirical results and robustness and external Hofmeister, the former CEO of Shell, stated validity checks. The fi nal section concludes. that “50,000 people could lose their jobs.” This brief’s statistical analysis of labor market data A signifi cant infl ux of resources presents a signifi cantly different assessment appears to have off set much of the labor market implications of the drilling of the adverse impacts of the moratorium and spill response than those spill. This implies that the assumed in the multiplier model analyses. spill response was similar to a Empirical Strategy conventional fi scal stimulus, To reiterate, the Deepwater Horizon oil spill in that it created jobs and and the offshore drilling moratorium were economic activity. two unprecedented and unexpected events. Additionally, the economic impacts of the spill and moratorium events varied within and Predicted Labor Market Impacts of the Spill among the Gulf States. Coastal counties and and Drilling Moratorium parishes in this region were largely affected In the weeks after the Deepwater Horizon by these two events, while inland areas were sank to the bottom of the Gulf of Mexico, not. The scale of the spill response was also analysts and politicians began to predict the different across states and over time. These potential employment impacts of the spill spatial and temporal characteristics of the and the drilling moratorium. Various studies spill and moratorium motivate the empirical by economists and industry groups estimated framework. 2 Labor Market Impacts of the Deepwater Horizon Oil Spill TAUBMAN CENTER POLICY BRIEFS I use a difference-in-differences strategy to into Panhandle and Non-Panhandle regions – estimate the impacts of the spill, spill response, the former of which experienced signifi cantly and moratorium on employment and wages. more coastline oiling and spill response In this framework, the spill and moratorium activity than the latter. In addition, I isolate are considered exogenous events that “treat” the fi ve Louisiana parishes identifi ed by the coastal counties in the Gulf region. Given U.S. government as most active in support of the surprise nature of both events, they can offshore drilling activities. These are assumed credibly be characterized as exogenous and to be treated by the moratorium for June hence the pre-event period should not include through October 2010. For the control group, I anticipatory behavior in the Gulf economy (i.e., employ all non-coastal counties and parishes in relocating fi shing vessels to the Atlantic coast these fi ve states. in anticipation of the spill or relocating drilling rigs to another region in anticipation of the Results moratorium). I employ the National Oceanic To estimate the net effects of these events on and Atmospheric Administration’s defi nition of employment, I use monthly 2010 data from Gulf of Mexico coastal counties and parishes the Quarterly Census of Employment and for Alabama, Florida, Louisiana, Mississippi, Wages (QCEW) at the county/parish level. I and Texas. These counties are assumed to be use the logarithm of aggregate employment as treated by the spill and spill response for May my dependent variable, and include indicator through July 2010. I estimate separate effects variables for various groups of the treated by state and break out the Florida Gulf Coast and untreated counties/parishes described Table 1. Estimated Employment, Wage, and Establishment Impacts, 2010 (1) (2) (3) Total Weekly Wage Number of Employment Establishments Oil Parishes 1.2%** 2.0%** 0.80%** LA Coast ex Oil Parishes 0.26% -2.5%* 0.97%** AL Coast 1.3%* 3.8%* -0.17% FL Panhandle Coast -0.75% -0.13% -.0.99%** FL Non-Panhandle Coast -2.7%** -0.79% -1.9%** MS Coast -0.16% -1.5% -0.014% TX Coast 0.26% -2.2% 0.064% Sample Period 2010 2010 2010 N (counties) 534 534 534 N 5,340 1,602 1,602 Notes: The natural logarithm of employment, wage, and establishments are used as the dependent variables in the three regression models. The coeffi cients are displayed in percentages for ease of interpretation. Please see the working paper draft for the complete regression output.

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