The ripple effects of lower oil production and investment
For each job lost in the oil and gas industry, 6 jobs are lost in other industries
By ATB Economics 14 July 2020 1 min read
Between the pandemic and oil price crash, oil producers in Alberta have been compelled to cut both capital expenditures and production. This, in turn, means fewer jobs, lower exports, reduced demand for goods and services used by the oil sector, truncated government royalties and stunted economic growth overall.
In an effort to quantify the economic impact of the cuts, Statistics Canada released a study last week entitled “The Decline in Production and Investment in Canada’s Oil and Gas Sector and its Impact on the Economy.”
The study found that—depending on the magnitude of the cuts—Canada’s GDP would contract by between 1 and 2 per cent in 2020 while the total number of jobs in the country would fall by between 111,000 and 222,000 (see the chart below).
The study also found that 53 per cent of the decline in GDP and 85 per cent of the job losses would take place in industries other than the oil and gas sector.
This is because Canada's oil and gas industry uses goods and services from industries such manufacturing; finance, insurance, and real estate; mining; professional services; and administrative services.
In fact, “for each dollar in lost GDP in the oil and gas industry, $1.14 is lost in other industries due to indirect ($0.77) and induced ($0.37) impacts. For each job lost in the oil and gas industry, 6 jobs are lost in other industries (4 through indirect effects and 2 through induced effects).”
Given the above, the report concludes that “unless supply and demand conditions for oil and gas unexpectedly improve during the course of 2020, the results suggest that the anticipated reduction in oil and gas production and investment will be dramatic and will lead to significant drops in GDP and total number of jobs in the total economy.”