Association for Public Policy Analysis & Management

Will temporary resource booms benefit residents of communities holding the endowments in the long run? This question is of long-standing interest to local governments that craft policies related to energy development based on expectations of the net economic benefits to current residents, yet the vast literature on the resource curse has only indirectly addressed this question, by studying data aggregated for places rather than following data on individuals over time.

We contribute by i) estimating the individual-level effects of the boom-and-bust and by ii) examining how the boom-and-bust affected retirement timing. We do so by studying restricted data on individuals from the Panel Study of Income Dynamics (PSID). The key results from our preferred specifications, which are IV estimates of prime-aged households, indicate the boom-and-bust was not a clear-cut blessing for the average household. The early and peak boom increased taxable income flows by approximately $4,400 and $6,900 per year, but the bust decreased annual incomes by about $6,700 per year relative to a no-boom counterfactual. Additionally, we find at least suggestive evidence that the aftermath of the bust continued to depress average household income flows by $7,000 per year during the 1990s.

Estimates from non-preferred specifications highlight why researchers may be apt to conclude that energy booms are blessings if they must rely on aggregate, placed-based data that do not distinguish between residents and migrants or between prime aged and older workers. First, the naïve OLS estimates overstate the benefits of the boom-and-bust to residents, apparently because migrants to boom counties experienced larger income gains during the boom than did residents. Second, the bust and post-bust period IV estimates are very different in the under 55 sample when compared to the all age sample: estimates from the full sample reveal no evidence of negative effects on income flows during or after the bust.

We reconcile the difference in prime-aged versus all-age results by examining the role of retirement. Consistent with individuals smoothing the volatility of the boom-and-bust, the results indicate that individuals older than 55 were about 10 percentage points less likely to retire during the bust. We further validate the role of retirement in our income estimates by re-estimating the boom-and-bust effects using a sample that excludes retired individuals, regardless of age. Results mirror the results from the under-55 sample. Excluding retirees, the effect of the boom on average household income flows was positive during the boom, negative during the bust, and arguably negative during the post-bust.

Collectively, our evaluation of the effects of the boom-and-bust is mixed, but leans toward concluding it was a curse to local residents. The boom-and-bust delayed retirement, which is directly harmful because retirement is associated with improved health and life satisfaction (Gorry et al., 2019). With respect to income effects, we document clear-cut cumulative positive effects only when we use a sample that allows delayed retirement to operate as a mechanism for income gains.