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Employment, Input-Output Linkages, and the Energy Transition in California's Top Oil-Producing Region

Rich Ryan, Nyakundi Michieka

Abstract

The US economy is transitioning away from fossil fuels toward sources of green energy. California policymakers have adopted the goal of carbon neutrality by 2045 or earlier. Within California, Kern County accounts for over 70 percent of oil produced within the state. To understand how the transition may affect opportunities in Kern, we propose a structural vector autoregressive model the jointly explains the crude-oil market and the evolution of employment in Kern. We use monthly data from the Quarterly Census of Employment and Wages to measure employment. While industries directly involved in the extraction of fossil fuels employ less than 2 percent of workers, the oil market is responsible for 11 percent of the variation in employment growth. Employment in Kern would be currently 6.4 percent lower absent the influence of the global oil market. We explain these large effects using a theoretical framework of production that relies on a network of input-output linkages. The findings may be useful to policymakers designing place-based policy aimed at helping vulnerable oil-dependent regions.

Employment, Input-Output Linkages, and the Energy Transition in California's Top Oil-Producing Region

Abstract

The US economy is transitioning away from fossil fuels toward sources of green energy. California policymakers have adopted the goal of carbon neutrality by 2045 or earlier. Within California, Kern County accounts for over 70 percent of oil produced within the state. To understand how the transition may affect opportunities in Kern, we propose a structural vector autoregressive model the jointly explains the crude-oil market and the evolution of employment in Kern. We use monthly data from the Quarterly Census of Employment and Wages to measure employment. While industries directly involved in the extraction of fossil fuels employ less than 2 percent of workers, the oil market is responsible for 11 percent of the variation in employment growth. Employment in Kern would be currently 6.4 percent lower absent the influence of the global oil market. We explain these large effects using a theoretical framework of production that relies on a network of input-output linkages. The findings may be useful to policymakers designing place-based policy aimed at helping vulnerable oil-dependent regions.
Paper Structure (27 sections, 19 equations, 10 figures, 3 tables)

This paper contains 27 sections, 19 equations, 10 figures, 3 tables.

Table of Contents

  1. Introduction
  2. Theory
  3. Economic environment
  4. Firms
  5. Market clearing
  6. Households
  7. Description of the competitive equilibrium
  8. Main result
  9. An example that illustrates how a change in the price of crude oil affects upstream sectors
  10. Illustrative framework
  11. Summary of conclusions from the illustrative framework
  12. A joint model of the global crude-oil market and employment in Kern County, California's top oil-producing region
  13. Key determinants
  14. A structural model that decomposes regional employment growth
  15. Empirical results
  16. ...and 12 more sections

Figures (10)

  • Figure 1: Example economies
  • Figure 2: Responses to one-standard-deviation structural shocks
  • Figure 3: Cumulative employment responses to one-standard-deviation structural shocks in Kern County, California
  • Figure 4: Historical decomposition of employment growth in Kern County, California, January $1995$ through December $2024$
  • Figure 5: Counterfactuals for employment, January $1997$ through December $2009$
  • ...and 5 more figures