Review of Kelsey
et al.’s “Economic Impacts of Marcellus Shale in Pennsylvania: Employment and
Income in 2009” by Matthew Rousu and Zach Zoller
Written
By: Timothy W. Kelsey (Penn State), Martin Shields (Colorado State), James R. Ladlee (Penn State), and Melissa Ward (Penn State), in
cooperation with Tracy L. Brundage (Penn College),
Jeffrey F. Lorson (Penn College), Larry L. Michael
(Penn College), and Thomas B. Murphy (Penn State)
Overview:
The authors use surveys of businesses to estimate
the economic impact of Marcellus Shale in Pennsylvania in 2009 where they find
an economic impact of $3.2 billion.
This study is one of the most transparent we’ve
seen, and overall the methods seem quite solid.
One thing different from Considine’s study is
the authors spend a lot of time trying to determine how much of the wages go to
Pennsylvanian workers vs. out-of-state workers, and how much of the
out-of-state wages would be spent in Pennsylvania.
The authors do not attempt to estimate all the
impacts from Marcellus shale, and they openly admit that they hope future
research will address effects on environment and health, for example. We do have concerns that the economic
multiplier doesn’t seem to differ in areas that are near the border of other
states relative to areas where in the center of the state. Areas closer to the state will have more
“leakage” (a term the authors use), meaning more money is leaked outside of
Pennsylvania. This would cause a lower
economic multiplier. Given that nothing
on this is noted in the study, we have to assume the same multiplier was used
throughout the state, which we think is incorrect.
If graded on our best practices – how
well does this study do?
What the study does
well:
2) The study clearly defines the geographic region of the
study as it examines the entire state of Pennsylvania.
4) The authors only count expenditures once.
5) The study has been reviewed Kathryn J. Brasier (Penn State), Steven C. Deller
(University of Wisconsin), David L. Kay (Cornell University), Thomas Knapp
(Penn State), and Stephen Smith (Penn State).
6) The authors are very transparent with their
methodology. When the make assumptions
(e.g., on page 36 they discuss the percentage of money out-of-state workers
spend in Pennsylvania), they usually state them and sometimes run alternative
specifications.
7) The study does compare its results, specifically
comparing its economic impact results to that of Considine
et al. (2010).
8) The authors state that this study was funded by the
Pennsylvania Economic Development Financing Authority.
What the study does not
do well:
1) This study states the economic impact in terms of both
jobs and monetary impact. This could
confuse some readers into thinking, for example, that in 2009 Marcellus shale
led to a $3.15 billion economic impact and expanded employment by 23,600 jobs.
3) I don’t think the authors clearly define the counterfactual. They want to estimate the economic gain to Pennsylvania. Because of that, they are cutting out some “leakage” by estimating how much of the wages that go to non-Pennsylvanians are being spent in the state. However, this is really the “middle road”.
If the authors wanted to estimate
the economic impact on Pennsylvania now, they should have not worried about
out-of-state workers as the multiplier should correctly account for this issue. This would result in a higher estimated impact.
If instead the authors wanted to estimate the economic
impact on those living in Pennsylvania prior to the boom, the wages paid to the
out-of-state workers should be removed entirely, as those workers were not here
prior to the boom. Further, any workers
that wouldn’t be located in the state (even if they permanently moved here)
shouldn’t be included in the analysis. This would result in a lower economic impact. By including new (permanent) Pennsylvanians, it seems the
authors take the middle road on this issue.
Overall
·
This study is one of the better studies assessing the economic impact of Marcellus shale. Their methods are transparent, issues are
well thought out and discussed, and the reader can get a clear sense of how the
authors arrived at the economic impact. One could argue with assumptions made, as in
any economic impact study, but they are so clearly laid out that others could
then compute an alternative estimate for the economic impact.
·
The estimated economic impact, being far
less than that estimated in Considine et al. (2010),
makes this study’s estimated impact seem more credible. This is especially true given the
transparency of the methods.