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A rising oil tide lifts all wages

April 4, 2012


Rob Grunewald Associate Economist
A rising oil tide lifts all wages

Average wages have risen dramatically in western North Dakota, where rapid oil and gas development has transformed the economic landscape. Between 2004 and 2011, the average annual wage in counties with substantial oil activity increased over 80 percent in constant dollars, to about $56,000—a surge in compensation that dwarfed increases in the state and nation.

Some of the increase is due to a rising proportion of well-paid workers engaged in activities related to oil and gas—exploration and drilling, transporting oilfield supplies and equipment, building new facilities for oil companies and oilfield service firms. Jobs in mining (a statistical category dominated by oil workers in the region), trucking and construction have posted strong gains during the oil boom (see chart). In 2004, oil-related jobs accounted for just 12 percent of total employment in five core oil-producing counties; in 2011, that share was 41 percent. On average, workers in oil-related industries earned twice the pay of workers in other industries last year.

But most of the increase in oil patch wages stems from labor demand chasing supply, not just in oil-related industries, but in virtually every sector of the regional economy. In communities such as Williston, Watford City and Dickinson, N.D., few workers are available to fill thousands of job openings. Many employers—including those in industries that depend to a lesser extent on oil industry spending—have responded by offering higher pay. For example, in core oil counties, inflation-adjusted wages for hotel and food service workers increased 63 percent from 2004 to 2011. Over the same period, real manufacturing wages increased 21 percent.

An analysis of the relative impact of the two trends—a shift in employment to oil-related activity and across-the-board wage increases—shows that broad wage hikes account for close to three quarters of the average wage increase during the oil boom, while the shift in employment to oil-related activity accounts for about one quarter of the average wage increase. So the oil rush has lifted all workers in the region, not just workers tied to oil and gas extraction.

For much more on labor trends in the oil patch, see the forthcoming April issue of the fedgazette.

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