Blog Posts > Temporary Pipeline Construction Boom Could Spell Doom
April 16, 2019

Temporary Pipeline Construction Boom Could Spell Doom

Revised job figures from the Bureau of Labor Statistics show that West Virginia has experienced relatively strong job growth over the last year thanks to the construction industry. In particular, the growth in natural gas pipeline construction has fueled not only this job growth and but also the state’s short-term revenue surpluses—especially during the last half of 2018—causing Governor Justice to declare it the largest 6 month revenue surplus in West Virginia history. As this temporary pipeline construction boom fades and recent tax cuts go into effect, lawmakers may have to make deep cuts to the state budget unless they raise taxes.

The chart below looks at non-farm job growth with and without the construction industry from the Bureau of Labor Statistics, Current Employment Survey (CES). It shows that West Virginia gained a total of 5,400 non-farm jobs from January 2008 (the beginning of the recession) until January 2019. If we remove construction jobs, however, West Virginia has actually lost 8,300 jobs since the beginning of the Great Recession.

*Source: Current Employment Survey, Bureau of Labor Statistics

Over the last year (Jan. 2018 to Jan. 2019), West Virginia has gained approximately 18,000 total jobs – the sixth highest rate in the nation. Of this amount, 17,300 were in the construction industry. This means almost all of the state’s job growth over the last year has been in the construction industry. While every other sector showed little movement in that time period, construction employment increased by over 50 percent. The large bump in construction employment over this period is directly tied to the state’s recent revenue surpluses, especially over the second half of 2018, according to the WV Dept of Revenue.

*Source: Current Employment Survey, Bureau of Labor Statistics

What type of construction has been driving the recent job and revenue growth? Data from the Quarterly Census of Employment and Wages (QCEW), which (unlike the CES) provides a more detailed breakdown by industry, helps shed light on this question. According to the latest QCEW data, total employment grew by 12,738 from the 3rd quarter of 2017 to the 3rd quarter of 2018 while construction employment grew by 12,942. This means that without the growth in construction employment, there would have been a net loss in jobs over this period.

*Source: Quarterly Census of Employment and Wages, Bureau of Labor Statistics

The growth in construction employment over this period is almost entirely because of the growth in “oil and gas pipeline and related structures construction” employment that increased by 9,346, from 5,130 to 14,476, representing about 72 percent of the total construction employment growth over this period.

*Source: Quarterly Census of Employment and Wages, Bureau of Labor Statistics

What about growth from highway and road construction? While West Virginia passed general obligation bonds in late 2016 to invest in West Virginia roads and infrastructure as part of Governor Justice’s “Road to Prosperity”, there hasn’t been much growth in road and highway construction. According to Governor Justice, the “Road to Prosperity” was expected to create 48,000 new jobs in a variety of industries over a number of years.

Between the third quarter of 2017 and the third quarter of 2018, a mere 324 construction jobs were added overall in the highway, street, and bridge construction sector. Therefore, it does not appear that West Virginia’s investment in infrastructure can be credited with the large increase in West Virginian construction jobs (yet) let alone tens of thousands of jobs. Instead, it appears that job growth has been primary driven by oil and gas construction with a dramatic increase in numbers of jobs in the second and third quarter of 2018.

*Source: Quarterly Census of Employment and Wages, Bureau of Labor Statistics

The QCEW data also allows us to look at the growth in wages over this period, which can play a large role in impacting revenue collections, especially sales and income tax collections. From the 3rd quarter of 2017 to the 3rd quarter of 2018, total quarterly wages grew from $7.24 billion to $7.98 billion or by $735.6 million. Meanwhile, total construction wages over this period grew by $416 million– with oil and gas pipeline construction wages accounting for $314.9 million or 43 percent of total wage growth. This large proportional increase in construction wages—along with strong coal sales and growth in natural gas prices—over this period helps explain the revenue surpluses West Virginia recently experienced in the second half of 2018.  As Deputy Secretary for the Department of Revenue, Mark Muchow, noted in January, construction was largely to thank for these increased revenues (via payroll holding tax). The job numbers seem to support this.

Unfortunately, it would be naïve to expect these to be sustainable jobs for West Virginians. Though pipeline construction is booming (with more than $4 billion in projects currently underway), this construction is temporary and set to finish up in the near future—with jobs ending along with the completion of the pipeline construction. And it is important to remember many of these new construction job are going to non-residents.

West Virginia is still waiting to see how the “Roads to Prosperity” will, in fact, bring prosperity to West Virginia. The 48,000 jobs Governor Justice has promised have not yet been realized, though projects have gotten underway. While this gives reason to be cautiously optimistic, celebrating record revenues may be premature. Without job growth outside of pipeline construction, West Virginia will likely see the boon in revenues—and the jobs that created them—disappear as quickly as they came, leaving West Virginia scrambling to fill the revenue hole from recent tax cuts and the pending loss of pipeline construction jobs.

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