Impact of Oil Boom and Bust on Human Capital Investment in the U.S.

Abstract

This paper uses Census IPUMS data from 1970 to 2000 and ACS data from 2010 to estimate the impact of the oil boom and bust on wages and human capital formation in the US. The paper finds that the oil boom between 1970 and 1980 was associated with a slower growth in the relative demand for skills in the oil and gas sector and regions where the sector had a large presence. Overall, the oil boom led to a sharp rise in real wages in oil areas relative to non-oil parts of the nation, raising the opportunity cost of additional schooling. Real wage premium for a college degree declined during the oil boom in oil-rich regions such as Texas, compared with non-oil areas. The oil boom of the 1970’s potentially had an impact on human capital investment through two channels — by raising the opportunity cost of additional schooling as well as by lowering the returns from going to college. Using a synthetic cohort approach the paper finds that relative to cohorts who went to high school in the pre-boom period, the cohort reaching high school age during the oil boom was about 2 percentage points less likely to have a college degree by the time they turned 34 to 37 years of age in 2000.