Gulf Job-Losses Hocus-Pocus

David Kreutzer /

The Obama administration recently issued an inter-agency report on the employment effects of its deep-water drilling moratorium. The Administration finds employment effects that are roughly half of those from a variety of other estimates. However:

The anonymous authors of the report claim that their estimates have the advantage of more recent employment data. However, the more recent employment data has nothing to do with their calculation. The lower jobs impact is the result of cutting the estimate of jobs per dollar spent by 40–60 percent from the Administration’s own estimate—the one used to judge the supposed positive employment effects of its stimulus package.

If the Obama administration were consistent in its use of employment multipliers, its estimate of jobs killed by the moratorium would have been almost identical to the 20,000 job-loss projection estimates from other groups.

In estimating the employment effects of the American Recovery and Reinvestment Act of 2009, the Obama administration projects there is one job-year created for every $92,000 spent. First it should be noted that this multiplier is less legitimate when used for government expenditure (which must be offset by reduced expenditure in the private economy) than with oil extraction where there are net increases in the resources available to drive the economy.

Ignoring this bias in favor of using the multiplier for oil production, the Obama Administration actually cuts the multiplier because the lost private expenditure is not “a permanent spending shock.” Maybe the Administration needs a common-sense czar to review their reports because the ARRA 2009 was not a permanent spending shock either—at least we hope not given its dismal failure. In any event, the Administration cannot claim that temporary spending by the government isn’t temporary while temporary spending by private industry is, actually, temporary.

Reworking the Administration’s estimates using consistent logic creates estimates consistent with previous ones. The Administration estimates industry spending losses from the moratorium will be $1.8 billion over six months. Dividing this loss by $92,000 leads to an estimate of 19,565 lost job-years—slightly less than the 23,000 originally projected by the now re-named Minerals Management Service.

In this recent report, the Administration assumes that there will be no jobs lost after the moratorium is lifted in November. If this were true, then the job-years would all be lost during the six months of the moratorium and would double the jobs lost for that period to 39,130—a number in line with the estimates done by Louisiana State University (Dismukes) and the Louisiana Mid-Continent Oil and Gas Association.

Even these estimates ignore the employment effects of the de facto moratorium on shallow-water drilling that has accompanied the official moratorium. Further the Obama Administration plays down the impact on oil production by noting the lost 30,000,000 barrels in 2011 will have a minor impact on our oil prices because oil is traded world-wide. This may be true but it will require spending billions per year more on imported oil.

While it is trivializing 30,000,000 barrels per year, the alternative-energy-manic Administration might want to note that this lost production exceeds all the ethanol that one-third of our corn crop produced in 2009.

For the many who are skeptical about either of the Obama Administration’s job-creation multiplier’s, we should ask why even the low estimate of 10,000 lost jobs isn’t serious enough to end the moratorium opposed by a majority of the scientists consulted by the Administration.