Local Labor Markets and Natural Resources: A Synthesis of the Literature

Abstract

A primary way that natural resources affect a locality is through the demand for labor, with greater extraction requiring more workers. Shifts in labor demand can be measured through changes in employment and earnings, the main labor market outcomes, or through changes in the population and income, more generally. These changes may spillover into the nonresource economy, leading to greater overall effects or possibly crowd out; be spread unequally across the population, thereby altering the distribution of income and the poverty rate; or influence educational attainment, as people choose between additional schooling and work. In this review, the literature linking natural resources to local labor markets is synthesized by organizing existing studies according to their resource measurement and the outcomes that they consider. This synthesis provides an accessible guide to a literature that has boomed in recent years. It also identifies promising avenues for future research and lays a foundation to further generalize the evidence through an eventual meta-analysis. developed a conceptual framework for the linkages between resources and socioeconomic outcomes and, in doing so, reviewed many studies.Most recently, Fleming et al. (2015) reviewed the literature on the effects of unconventional fossil fuel development by looking at its effects on employment and income, population and housing values, and human and social capital. More narrowly focusing on shale gas development, Mason et al. (2015) quantify the economic costs and benefits of development and review the related research on unconventional fossil fuel development. Aragon et al. (2015) consider nonrenewable resources in general and review the crosscountry and within-country literature, looking at an array of socioeconomic, environmental, and public finance outcomes. Lastly, van der Ploeg and Poelhekke (2017) offer a broad review of cross-country and within-country studies linking natural resources to a variety of economic outcomes.Distinguishing the current review from related reviews, a typology of studies is introduced based on the measurement of natural resources that each paper uses. This resource typology includes dependence, such as the share of earnings accounted for by the oil and gas sector; endowments, such as oil and gas reserves; and extraction, such as the number of wells drilled. The literature has many examples of each type of measurement. While much of the earlier research of natural resources focused on measuring dependence and testing the so-called "resource-curse hypothesis," many of the newer studies instead use endowments, or extraction, or some combination of the two, as their resource measure.After introducing this resource typology, the literature linking natural resources to local labor markets is further synthesized by considering the estimated effects on aggregate labor market outcomes, beginning with employment and population, and then moving on to earnings and income. Regarding employment and population, all of the studies found pos...

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