Association for Public Policy Analysis & Management

High energy prices and innovations in horizontal drilling and hydraulic fracturing caused an oil and gas drilling boom in shale formations across the United States. The Texas shale boom, in particular, permits studying several questions of broad interest that span the areas of education, labor markets, and public finance. As this study will show, the Texas boom was both large and localized, tripling the tax base of the average shale school district and increasing private sector wages by a quarter.

How do schools, students, and teachers respond to a localized economic shock that provided resources to schools, but also increased private sector wages, and therefore the opportunity cost for students and teachers to stay in the classroom? Greater revenue could improve student achievement by allowing schools to purchase equipment that enhances learning or to pay higher salaries to attract better teachers. Spending additional revenues in productive ways may prove difficult, however, when they come rapidly, temporarily, and in large sums, as can happen during an economic boom. A boom can also increase private sector wage rates, which could encourage students to miss class or drop out of school. Teachers may also leave for higher paying jobs, especially if no commensurate increase in teacher salaries occurs. The labor market effects on school-wide student achievement will therefore depend on whether high or low performing students or teachers are pulled from the classroom.

Empirically, we exploit variation in shale geology across Texas school districts and temporal variation in drilling caused by changing energy prices and the introduction of improved technologies for shale development. Specifically, shale depth serves as a proxy for a district's energy resources, which is interacted with energy prices or time period indicators to capture the timing of extraction. Home to four major shale formations, Texas has been the epicenter of the U.S. shale boom. The state is also one of fifteen U.S. states with a policy that subjects oil and gas wells to property taxes. Because of the policy, the drilling boom increased the property tax base and revenues to schools in at least some areas of the state.

For the 2000-2014 period, standardized test scores in shale oil districts declined relative to districts outside of any shale formation. The decline occurred despite an increase in the property tax base of over a million dollars per student in shale districts, which led school districts to lower property tax rates, borrow more, and spend more. Most of the additional spending went to capital projects or to service debt, but none of it went to teachers. Despite the shale boom increasing the private market wage by 24 percent, only attendance rates declined among high school students, while their completion rates did not. However, a growing gap between private and education sector wages contributed to greater teacher turnover and put more inexperienced teachers in the classroom. The overall negative effect of shale development on student achievement, therefore, likely stems in part from the resulting disruption in turnover and decline in teacher quality.