Gulf Coast Jobs and the Deepwater Horizon Oil Spill

Gulf Coast Jobs and the Deepwater Horizon Oil Spill On April 20 2010, the Deepwater Horizon explosion caused 11 deaths and the largest oil-well spill in U.S. history. Prior to the explosion, total employment in the counties along the Gulf Coast grew at an average annual rate of 1.6 percent from 1969 to April 2010. This expansion is comparable to U.S. average employment growth, but with noticeable differences at various points in time - particularly after Hurricanes Katrina and Rita in 2005. After the explosion, several key industries - oil and gas production and their support services, commercial fishing, and tourism are already experiencing employment losses. In the short run, these losses are offset by BP-funded jobs related to spill containment and clean-up. In the longer run, the job outlook is uncertain. On April 20, 2010, an explosion occurred in the oil well being developed by the Deepwater Horizon rig off the Louisiana coast. Eleven workers were killed in the blast and oil immediately began to spill into the Gulf. As of July 14, the explosion had led to an estimated 35,000 to 60,000 barrels of oil spilled into the Gulf of Mexico each day (Florida, State of, 2010), making it the largest oil-well spill in the history of the United States. Much attention has been given to assessing the current and future economic impacts of the Deepwater Horizon oil spill, with new information developed almost daily based on the best available data. However, due to the unprecedented nature of the oil spill and the fact that it has not yet been fully contained, obtaining reliable estimates is difficult. 1

Index 1969 = 100 The purpose of this report is to place the spill in a regional and historical context and qualitatively analyze the possible effects of the spill on the local economy. The study area for this analysis is 29 counties along the Gulf Coast primarily impacted by the oil spill (see map above). The report consists of two sections. The first section establishes a baseline from which to make future comparisons and from which to draw conclusions about the impact of specific events (varying in nature and magnitude) on the Gulf Coast region. We use Regional Economic Information System (REIS) data prepared by the U.S. Bureau of Economic Analysis (BEA) and employment statistics from the U.S. Bureau of Labor Statistics (BLS). The second section of the report summarizes our research to date on the possible impacts of the oil spill with respect to key regional economic sectors. Before the Spill: Economic Growth Between 1969 and 2010 Between 1969 and April 2010 (prior to the oil spill), total employment in the area increased on average by 1.6 percent per year, similar to the average growth rate for employment at the national level (BEA, 2010; BLS, 2010). There were, however, regional fluctuations, most notably the period immediately following Hurricanes Katrina and Rita, with total employment falling by an estimated 9.6 percent from August to September 2005 (BLS, 2010) and an economic loss ranging from $81 to more than $200 billion (Congleton, 2006; Knabb, Rhome, & Brown, 2006; Associated Press, 2005). 220.0 200.0 Total Full Time and Part Time Employment 1969-2010, United States and the Gulf Region 180.0 160.0 140.0 120.0 100.0 80.0 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 United States Gulf Region Sources: U.S. Bureau of Economic Analysis, 2010; U.S. Bureau of Labor Statistics, 2010; and estimates prepared for this report. Several economic sectors of the Gulf Coast have experienced periods of increased importance, as well as decline, over the last four decades. Many of the sectors showing greater volatility over this period are the export-oriented sectors, including oil and gas production. Prior to the last decade there are three periods in which the fluctuations in sector composition coincided with busts or booms in the area relative to the national economy.

1971-1981: A Decade of Expansion Between 1971 and 1981, employment in the area accelerated to exceed growth rates experienced by the country as a whole. This growth over and above the national rate may be partly attributable to continued southern industrialization (Scranton, 2001) and partly due to the rapid expansion of petrochemical exploration during a period of high oil prices in the 1970s (Minerals Management Service, 2004). Mining, which includes oil and gas extraction, was the fastest growing job sector for the region during this period. Other sectors displaying rapid growth between 1971 and 1981 include construction; finance, insurance and real estate; agricultural services, forestry, and fishing; and services. 713,995 46% Total Employment in the Study Area, Distribution by State, April 2010 185,894 12% 233,335 15% Alabama Florida Louisiana Mississippi 413,326 27% 1981 1987: Restructuring a Flat Economy The recession and collapse of oil prices in the early 1980s were major setbacks for the Gulf region. Between 1981 and 1987, employment in the area remained flat while employment at the national level continued growing at an average rate of 2.0 percent per year. Many of the growth sectors in the area that had experienced rapid expansion between 1971 and 1981 reversed that trend and began losing jobs at a rapid pace, most notably in the mining, construction, and manufacturing sectors. This contributed to a shift in the shares of employment by sector, with most gains going to the services sector, in line with the national shift towards a service-based economy. By 1987, approximately 31.6 percent of all private sector jobs in the area were in the services sector compared to 26.7 percent of private sector jobs in 1981 (BEA, 2010). Average Annual Employment Growth in the Study Area, 1971-2008 Sector 1971-1981 1981-1987 1987-2000 2001-2004 2004-2006 2006-2008 Total employment 3.3% 0.0% 2.0% 1.5% -1.6% 2.8% Private employment 3.7% -0.1% 2.3% 1.6% -0.8% 2.9% Forestry, fishing, and related activities 1 4.2% 6.7% 1.3% -3.8% -5.7% 1.0% Mining 5.8% -6.6% -2.4% -7.8% 3.9% 8.3% Construction 5.1% -4.1% 3.6% 1.6% 10.5% -0.9% Manufacturing 2.0% -3.7% -0.1% -2.7% -0.7% 2.0% Wholesale trade 2.8% -2.4% 1.4% 0.2% -3.3% 1.1% Retail Trade 3.7% 2.4% 1.9% 0.7% -1.9% 1.0% Finance, insurance and real estate 2 4.7% 1.0% 1.7% 3.7% 1.8% 5.0% Transportation, utilities and warehousing 3 3.6% -3.5% 1.4% -1.0% 8.9% 4.5% Services 4.0% 2.8% 3.8% 2.9% -3.8% 3.8% Arts, entertainment, and recreation NA NA NA -1.9% -9.9% 9.1% Accommodation and food services NA NA NA 3.6% -7.7% 4.1% Government and government enterprises 2.1% 0.6% 1.2% 0.6% -5.7% 2.7% NA Employment by service type not available before 2001. 1 Defined as "Agricultural services, forestry, and fishing" 1969-2000 and "Forestry, fishing, and related activities" 2001-2008 2 Defined as "Finance, insurance, and real estate" 1969-2000 and sum of "Finance and insurance" and "real estate and rental and leasing" 2001-2008 3 Defined as "Transportation and public utilities" 1969-2000 and the sum of "Transportation and warehousing" and "Utilities" 2001-2008 Source: U.S. Bureau of Economic Analysis, 2010 3

1987 2000: In Step with National Growth Between 1987 and 2000, employment growth in the area recovered and returned to a similar pattern of growth as that of the country as a whole, expanding at an average annual rate of 2.0 percent. All sectors grew at a slower pace than in the 1971-1981 period, with the exception of mining and manufacturing, which continued losing jobs. By 2000, services accounted for 38.2 percent of all jobs in the private sector. 2001 April 2010: Disaster and Recovery The compounding effects of the dot-com crash in 2000 and the attacks of September 11, 2001 left both the regional and national economies in a shallow recession (Kliesen, 2003), though the area recovered at a slightly faster pace than the nation until Hurricanes Katrina and Rita in 2005. Total employment fell 1.6 percent annually between 2004 and 2006 as a direct result of the hurricanes, which especially devastated coastal Louisiana and Mississippi s tourism, fishing, retail, and government sectors due to the destruction of homes and business and the displacement of thousands of residents. Based on estimates we prepared following Hurricane Katrina s landfall, up to 30 percent of the displaced population of numerous Gulf Coast counties would remain displaced for more than two years (Robert D. Niehaus, Inc., 2006). Employment managed to grow 2.8 percent annually following the hurricanes (2006-2008) before falling again in 2009 due to the 2007-2010 financial crisis and consequent recession. Despite this latest decline, the Gulf region s economy (as measured by employment levels) was set to reach pre-katrina levels in 2010. As the national economy appears to be on a gradual recovery path, the area would have been reasonably expected to resume employment growth, though more slowly than its historic rate ranging from 1.5 percent to 2.0 percent, had the Deepwater Horizon oil spill not occurred. Economic Impacts of the Oil Spill The economic impacts to the Gulf region as well as the nation from the Deepwater Horizon oil spill are not easily quantifiable given the nature of the disaster. An oil spill is an ongoing and evolving event that may have generational effects on natural resources and the sectors of the economy which depend on them. Although particular sectors may be affected more directly than others, secondary shocks will inevitably reach additional sectors of the regional and national economies. Furthermore, proposed changes in laws and regulations spurred by the oil spill could easily lead to economic impacts for sectors entirely unrelated to businesses on the Gulf Coast. Fishing and Aquaculture News sources and preliminary economic data suggest that the economic sectors bearing the brunt of the initial impact of the oil spill are those directly related to fishing activity and the $20 billion Gulf Coast tourism industry (Environmental Protection Agency, 2010). According to Bloomberg Businessweek (Kuriloff & Polson, 2010), Louisiana is the largest seafood producer in the lower 48 states, with $1.8 billion in retail sales and another $1 billion derived from recreational fishing. Aquaculture along the Louisiana shore is especially at risk. For many of the 2.2 million employees of the Gulf Coast s $77 billion restaurant industry (Surh, 2010), baseline environmental damages to the Gulf s supply of shrimp, oysters and fish may be amplified by lingering negative views of food safety (Robbins, 2010). Tourism Travel associations and industry experts report 10 to 25 percent drops since April in monthly bookings around the Florida panhandle (Associated Press, 2010; Jervis & Jones, 2010). The Louisiana Office of Tourism found in a preliminary survey that 26 percent of leisure travelers who were planning a trip to the Louisiana coast in the coming months had either postponed or cancelled their vacation as a result of the oil spill (Louisiana Office of Tourism, 2010). The full extent of damage will not be known until well after the spill is contained, and even then, economic losses to the tourism industry and subsequent government revenue will be shaped by the effectiveness of campaigns aimed at swaying public 4

Millions perceptions of Gulf tourism. Past spills of smaller scale have taken months to clean up, with some negative economic and environmental impacts lasting for decades, as in the case of the 1989 Exxon Valdez spill (NOAA, 2010). Offshore Drilling and Petrochemical Support Services The political ramifications of the oil spill may be as damaging to the offshore oil industry as it will be to Gulf Coast fisheries and tourism. On April 30, the Obama administration issued a moratorium on deepwater offshore oil drilling throughout the Gulf region for depths of 500 feet or more. The six-month ban affected 33 deepwater rigs responsible for approximately 1,400 jobs (Dow Jones & Company, 2010). The ban has been overturned twice, but the ongoing appeals process has kept hundreds of workers away from their normal jobs (Broder, 2010). On July 12, the administration issued a revised, more explicit moratorium that affects all floating deepwater oil rigs with blowout preventers, regardless of depth. The new moratorium imposes conditions that would be difficult for most operators to meet quickly, threatening at least 36 rigs and thousands more jobs in an industry that employs 103,000 workers in Louisiana alone (Hammer, 2010). According to Interior Secretary Ken Salazar, most offshore rigs would remain barred from drilling in deep water through November if the new moratorium stands (Frommer, 2010). Counter-Effects While the Gulf region certainly faces a net loss in employment over the long term as a result of the oil spill, many out-ofwork fishermen and other coastal residents are now involved in cleanup efforts, as are outside contractors. As of July 13, more than 44,000 personnel were directly involved in the clean-up, including the crews of more than 2,700 local commercial and charter fishing vessels hired by BP who might otherwise be out of work (Deepwater Claims Paid by BP, by States in the Study Area $80 Horizon Response, 2010; Kawamoto, 2010). $70 This shift in employment is temporary, but it is helping to keep coastal restaurants, hotels, and supporting industries afloat. BP has also already paid over $177 million in liability claims (81.7 percent in the area) and millions more for local advertising to dampen the oil spill s effects on tourism in the area (BP, 2010). Financial assistance of this type helps generate and retain some employment in the area, but the negative environmental and economic shocks to the region will likely be felt long after major recovery operations are completed. $60 $50 $40 $30 $20 $10 $0 LA AL FL MS Individual Commercial Loss of Income Property Damage Loss of Profit Property Damage Political Ramifications The net economic impact of the oil spill on national employment and growth may be insignificant, as tourism and seafood dollars are diverted from the Gulf to other areas of the country (Johnson, 2010; Zhao, 2010). The oil spill has, however, sparked discussions in Congress that may have consequences for oil production other industries. Among the most notable are legislation to amend the Jones Act and the Limitation of Liability Act. Proposed amendments could potentially have a negative impact on the cruise ship industry as well as on operators of other vessels by increasing the corporate liability for environmental disasters and employee deaths at sea (Meier, 2010). Skyrocketing oil rig insurance rates and the likelihood of new safety regulations may also slow future offshore exploration and development, restricting domestic supply and putting upward pressure on oil prices. 5

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