The Oil – Employment Link, Part 1

I am giving another presentation, which I want to share with you as two posts. The first post is my analysis of the problem. The second post is more about the ramifications, and my view of what might be done.

From what I can see, oil consumption and employment are very closely linked. It is this link that seems to be contributing to the unemployment problems we have now in the US.

Going forward, we know that the US is heavily dependent on oil imports. If these drop, either because world oil production is dropping, or because world oil production is close to flat, and the US is being outbid for the oil, then it seems likely that employment in the United States will drop even more.

These are a selection of slides from my presentation:

Slide 4

Slide 5

Most people who have been looking at oil supply problems understand that oil is used for a wide variety of uses, covering all almost all aspects of what we do. Since machines are built for a particular type of energy source (oil, natural gas, coal, uranium, electricity), there is no easy way to shift from one energy source to another. And the raw materials fossil fuels provide cannot be replicated by something like wind.

Slide 6

In the above slide, we can argue which is cause and what is effect–does higher employment enable higher energy consumption, or does higher energy consumption enable employment–or is our system so tightly linked, that the two necessarily go together? If the two are very closely linked, the problem is that the system may “break”, rather than move very far from historical patterns.

During the 2004 to 2006 period, people were able to use their homes as a source of additional cash. They were able to frequently refinance the homes, taking out the higher equity, and using the funds to redecorate, buy new cars, or go on trips. Lax lending standards also allowed people with very low or unstable incomes to buy homes. All of this allowed a large amount of home building to go on. These activities allowed people to have more spendable income than their earnings from jobs would have suggested. I expect that it was this pseudo-income from increased loans that kept oil use high, even without high employment. Now that lending standards are higher, and home prices are lower, lending acts to depress spending, not add to it.

Slide 7

The graph on the above slide shows the total number of non-farm jobs according to the Bureau of Labor Statistics divided by US resident population. One problem with this calculation is that population includes both the elderly and children, so a person wouldn’t expect the percentage employed to be very high. Also, some people will hold two jobs.

When unemployment rates are as high as they are now, many will drop out, or will settle for a part-time or lower paid job, instead of full-time employment.

Slide 8

Many people don’t understand that oil imports have been declining. Even oil imports from Canada have been flat since 2006. Canadian oil imports have been dropping, as has Canadian non-oil sands production. Both of these declines tend to offset increases from oil sands.

Slide 9

Note that the above slide shows total oil consumption, not imports. US and the rest of OECD (the other “developed” countries–the historical oil importers) are getting less, while China, India, and the oil producers are getting more of the total, and in fact, are increasing their usage in absolute terms.

Slide 10

Saudi Arabia and the rest of OPEC can sound more powerful, if they can make claims about huge reserves and about the ability to increase production, if they choose to. The catch is that neither the reserves nor the ability to raise production has been audited. Past history shows that OPEC pumps a bit more when prices are higher, and less when prices are lower. This would seem to be a reasonable approach for any producer, especially if their costs of production vary from field to field.

Slide 11

World oil supply stopped rising in 2005. We have been experiencing oil-related problems since 2006, when there was no longer enough to go around, and the US (and many other countries) found it necessary to cut back on oil imports. Higher oil prices drove up interest rates, which pricked the housing bubble.

The way that reduced oil supply took place was through higher oil prices, leading to recession. Reduced credit also played a role. All of this looks like inadequate demand for oil, but it is really inadequate demand for high priced oil. If there had been low priced oil available, it is likely that there would have been plenty of demand.

Slide 13

Biefuels are the tiny purple wedge. This is mostly ethanol from corn.

Imports are the big light green section.

Slide 14

We don’t really know how fast future imports will drop, but it seems very likely they will decline. If total world production starts declining, then imports could very well drop at faster than the 7% a year shown. If world oil production stays level or increases a bit, then it is possible that the decline will be less than that shown–but it is pretty certain to still be a decline.

I show US oil production as being flat. In fact, US oil production has been decreasing since 1970, with few exceptions. US oil production showed a small uptick recently, thanks to deepwater drilling and increased Bakken production. But even maintaining this level of production is likely to be very difficult.

Slide 15

This is the indicated drop in non-farm employment, based on the relationships calculated. I am assuming that the ratio of oil consumption to employment continues to drop by 0.5% per year.

Slide 16

I don’t see how our economy can handle such a continued drop in employment. Governments (federal, state, and local) have been trying to “prop up” the economy, through deficit spending, but this can only go on for a limited time period. If employment tends to drop further, the situation will be even worse.

Slide 17

High oil prices cause recession and a cutback in credit, and these reduce demand for all fuels, and for electricity. You can see this in the 2009 drops in fuel use in the above graph for natural gas and coal.

Note that wind is only the tiny green line near the top. Wind produces intermittent electricity, which is not at all equivalent to oil. But even if it were, the quantity is still very low. (I am using EIA’s way of combining fuels of different types. Other approaches might treat wind more favorably, but its contribution would still be very small.)

Slide 18

This graph shows my guesstimate of traditional, non-farm employment. The timing is quite uncertain. Home gardening and crafts would not be counted in these amounts. I will talk more about this slide, and other slides, in a later post.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to inadequate supply.
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40 Responses to The Oil – Employment Link, Part 1

  1. DownToTheLastCookie says:

    It’s a 3000 miles drive from CA. to NY. At 70 mph an 80,000 tractor trailer gets 5.5 mpg and it take the driver 42.8 hours driving time. At 55 mph the tractor trailers get 7 mpg and it takes the driver 54.5 hours.

    It seems to me that if we get off the BAU (B.S.) and apply a little human matter between our ears, we can trade labor for fossil fuel with very little decrease in our standard of living.

    Now, there are half a million class 8 trucks on the road doing 150.000 miles a year. Do the math. What this country needs is leadership not war (for oil), but the GOP put a fork in Jimmy Carter 30 years ago. Now you want to tell me that less oil means fewer jobs. I’m not drinking that Kool-Aid. The real reason for the unemployment in this country is the trade defecit and the shipping of 30 million manufacturing jobs out of the country over the last 30 years. Now high school grads have nothing to look forward to but flipping hamburgers, it wasn’t that way 30 years ago when we bought our own goods. But then again how could we have $500 42” inch flat screens and/or computers without foreign slave labor?

    Oh, Gail I know I don’t post very often but this just got to me. I always enjoy your material and looking forward to part two. You’re doing a great JOB. Really, you write wonderful articles.

    Thanks

  2. Arthur Robey says:

    It seems to me that you should be part of a much bigger team, Gail.

    Something along the lines of the “Limits to Growth” group.
    Surely, the people who have enough money to hire the best and brightest on this Planet will have had the Idea of modeling our situation.
    They do it for climate-why not economics?

    OK. Sorry. I forgot.
    That would expose Economists for the Necromancers and Astrologers that they are.

    Still, if they want to be considered scientists they have to be exposed to the harsh light of reality.

  3. Pingback: The Oil Employment Link – Part 2 – Looking at more detail underlying History Chanel’s “Prophets of Doom” story | Our Finite World

  4. Min Barberio says:

    Can I just say what a relief to find someone who decently knows what they’re talking about on the internet. You always know how to bring an issue to light and make it credible. More people need to read this and understand this side of the story. I cant believe youre not more popular because you definitely have the gift.

  5. Sandwichman says:

    Gail,

    I saw your comment over at Juliet Schor’s blog and followed your link.

    What you are saying above about the statistical correlation between oil consumption and jobs is also inherent in the Jevons Paradox, as he stipulated in The Coal Question. I get the impression that discussion of the Paradox is almost entirely second hand and most people don’t go back and look at the source. They should. What they would find is that Jevons explicitly linked the paradox of energy efficiency to classical arguments about how machines “create more jobs than they destroy.”

    At Ecological Headstand, I’ve written about the explicit link in Jevons’s book between the paradox of efficiency and the ubiquitous “technology creates more jobs than it destroys” mantra. I would welcome your comment on the issues I raise there.

  6. Pingback: Oil Limits Overview and Links to Some Posts | Our Finite World

  7. I believe your RSS feed does no functional cause it just gives me a web page of strange characters, would the error be on my end?

    • I think you are probably right about the RSS feed. I know way back in 2007 when I started the blog, I had that problem. I tried to follow the directions. Perhaps I need to check with their technical support. Thanks for letting me know.

    • Check and see if the RSS feed is working now. I am not sure I really did anything to fix it, but it looks OK to me.

      I sent a message to tech support.

  8. bleach says:

    Uneducated question: I know you are using wordpress for this blog, but have you tried any other platforms. I am trying to decide for my blog? and I ask because I like yours.

    • I have had a WordPress blog since 2007, but changed the “Theme” recently, and this seems to be a big improvement. My new theme is called Twenty Ten. It seems to be WordPress’ new theme for 2010. One of the features I looked for was “Nested Comments”. I also looked for the flexibility for putting tabs across the top and various things in the sidebar. I have been very happy with it, and the cost of the whole setup is close to $0. The major drawback that I have run across is that commenters don’t seem to be able to post images, although they can post links to images. I have heard that that is true for Blogger as well.

      The only other blogging software I am familiar with is Drupal, which is what The Oil Drum and Energy Bulletin are on. This is more flexible, but you need a programmer to make changes, and it seems like you are always working around “bugs” in the program. For example, on The Oil Drum, uploading images is a pain, because they often “hang up”, and you lose everything since your last “save”.

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