London School of Economics Study: Fracking is Revitalizing U.S. Manufacturing
A new study by researchers from the London School of Economics (LSE) further confirms a development EID has highlighted many times before — the shale gas revolution is fueling a U.S. manufacturing renaissance.
The study, which was featured in a recent LSE Business Review article headlined “Fracking has made US manufacturing more competitive,” finds that for every two jobs directly created by fracking, at least one more is created in the manufacturing sector.
The study recognizes that fracking has made natural gas more readily available and affordable across the U.S. in the last decade. As a direct result, LSE’s research discovered that energy-intensive sectors like manufacturing became more productive in the U.S. in comparison to other nations as domestic natural gas prices fell,
“We document that output in energy-intensive sectors expands significantly with the widening of the natural gas price gap. Consistent with that observation, we show that the energy-intensive sectors absorb more capital (measured by capital expenditure decisions as a proxy) and labour (captured by employment) in order to produce this additional output.”
According to the researchers, U.S. natural gas provided by fracking contributed to a $10 “price gap” between the U.S. and Europe by the end of their sample period, leading to unprecedented economic gains that helped the country emerge from the depths of the Great Recession,
“Given that the price gap widened to $10 by 2012, we find that average manufacturing exports have expanded by roughly 10% due to the shale gas boom. This amounts to roughly 4.4% of the overall value of exports of goods and services from the United States in 2012.”
“Our results suggest that the cost advantage due to the shale gas boom may have helped the US economy recover significantly faster than it would otherwise have done after the financial crisis of 2007/08.”
Based on their analysis, the team was able to conclude that the shale gas revolution added more than 350,000 manufacturing jobs to the U.S. economy,
“Using the average sector level employment together with average energy intensity, we can arrive at an overall estimate of the employment gains: total manufacturing sector employment increased by around 356,000 jobs up to 2012. A comparison with previous research (Feyrer et al, 2015) suggests that, for every two jobs created in direct relation to fracking, this indirect effect adds more than one additional job elsewhere in the economy.”
This research falls in line with a recent White House National Economic Council report entitled “Revitalizing American Manufacturing” that found since U.S. manufacturing has added over 800,000 direct jobs since early 2010. The White House links this directly to shale production, saying, “The surge in American natural gas production has lowered energy costs for manufacturers and driven job growth.”
And as the following EID graphic illustrates, the dramatic rise in shale gas production in recent years has correlated directly with the recovery of the manufacturing sector.
This is just the latest report illustrating an unmistakable trend: as goes shale gas development, so goes manufacturing. And as U.S. manufacturing goes, so goes America.