Why Low Oil Prices Could Be Bad for Jobs in America

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Oil prices are plunging, and one byproduct almost everyone in the U.S. has noticed is the falling price of gasoline. In some locations gasoline has fallen below $2, and the rest of the country won't be far behind if the price of oil keeps falling.

Most of the time, lower gas prices are seen as a good thing. They put more money in consumers' wallets, which right now can be spent on items just in time for the holidays. As a result, retailers and the economy as a whole should get a bit of a boost as long as prices stay low.

But a side effect that shouldn't go unnoticed is the potential loss of thousands of jobs in the oil extraction industry. States like North Dakota and Texas have seen a boom in oil-related jobs, and if oil falls much further, drilling could dry up altogether there, pushing thousands back to unemployment lines. It's a repercussion that could have a big impact in parts of the country.

Oil and Gas Have Been a Boon for American Jobs

Since the shale boom began in earnest a decade ago, the number of people employed extracting oil and gas has risen sharply. As you can see below, the entire mining industry, which includes oil and gas and support services, has added about 360,000 jobs in the past decade, according to the Bureau of Labor Statistics. Oil and gas extraction alone has added nearly 100,000 jobs, and hundreds of thousands more jobs benefit from this economic activity.

<b class="credit">Source: U.S. Bureau of Labor Statistics</b>
Source: U.S. Bureau of Labor Statistics

This growth -- except for a dip in 2009 when oil prices plunged -- coincided with a rise in oil prices, and for the last few years, prices have been hovering around $100 per barrel. If we're in a "new normal" for oil where prices are below $60, or worse, below $40, the industry could reverse the course of the past decade. Thousands of jobs could be lost if oil prices stay low for long.

Where Jobs Would Be Hit Hardest

States that drove the oil boom would certainly be affected, but so would large swaths of the country that aren't normally known for oil drilling.

Below is a map of the location quotient for natural resource extraction. This measures which states have higher and lower than average exposure to the industry based on the national average. Blue is high exposure, orange is low. As you can see, North Dakota, Oklahoma and Texas are three of the most heavily dependent on energy, particularly oil.

<b class="credit">Source: U.S. Bureau of Labor Statistics</b>
Source: U.S. Bureau of Labor Statistics

The advantage for states in the South is that they're involved in the collection and processing of oil in the U.S. Even some oil from North Dakota makes its way to states like Oklahoma for refining. They'll be somewhat insulated because of this exposure if oil prices fall.

Hardest hit will be northern states like North Dakota, Montana, Wyoming and Alaska, which have expanded oil drilling rapidly in the past five years. The industry could be all but abandoned there if oil prices fall too far and stay down for long.

The Other Side of the Story

There are a lot of benefits to low oil and gasoline prices, but now that the U.S. imports only about 20 percent of the oil we consume, versus 60 percent in 2005, there's also a downside to lower prices. A lot of people's jobs rely on the growth in domestic energy production, and it's likely job cuts are on the table as drillers consider cutting back production.

Travis Hoium is a Motley Fool contributor.Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.