Journally Speaking: More frac jobs, less crime

The boom in tight oil and shale gas production in the US, fueled by advances in directional drilling, hydraulic fracturing, and seismic imaging technologies, has forever changed the country’s energy industry.

Reserves once thought depleted have been revitalized. Areas once thought unprofitable have been economically rejuvenated.

In short, the presence of hydraulic fracturing has not only had a substantial impact on local labor markets, according to a recent study from the Center for Growth and Opportunity at Utah State University, but the technology also may have, in fact, lead to a reduction in overall crime.

Using North Dakota’s Bakken formation as an area of focus, study author Brittany Street showed a 22% reduction in crime in the areas that experienced economic growth from fracing. These effects, admits Street, were partially offset once the fracing boom escalated during the more labor-intensive period. “This is consistent with improved economic opportunity reducing crime,” she said.

“Several theories can rationalize this phenomenon including increases in criminal opportunities, access to disposable income for activities that complement crime, and population changes,” Street said. “However, the extent to which each of these theories explains this puzzle is unclear, especially since changes in crime are typically observed at an aggregate level.”

Study details

The study—“The Impact of Economic Opportunity on Criminal Behavior: Evidence from the Fracking Boom”—presumes that “economic theory suggests crime should decrease as economic opportunities increase the returns to legal employment.” At the same time, however, the study considers many “well-documented cases where crime increases in response to areas becoming more prosperous.”

The study addresses this complex duality by examining the effects on crime only for residents already living in the area prior to the economic boom, Street said. “By focusing on the criminal behavior of existing residents, I disentangle the effect of economic opportunity from the effect of the compositional changes in the population caused by in-migration during the boom,” she said.

This, Street said, is vital, “because people tend to leave as labor market conditions worsen and migrate to areas during economic expansions.” She used the recent boom in fracing in North Dakota as “a large, exogenous shock to an individual’s relative returns to legal vs. illegal behavior.” By using this approach, she said, combined with the focus on the behavior of residents already living there prior to the start of fracing activity, enabled her to “identify the effect of economic opportunity on individual criminal behavior.”

She added, “To my knowledge, this is the first paper to identify effects of economic shocks on individuals’ criminal behavior separate from the effect of migration.”

The study’s methodology, using a generalized difference-in-differences framework, compared the criminal behavior of residents in counties in the shale play to residents in counties outside the shale play, before and after the fracing boom.

Study summary

Street’s paper found that crime decreased during the leasing period in response to improved job opportunities and that the effect was reduced somewhat once drilling increased throughout the production period.

This was particularly true during the more labor-intensive fracing activities, she said. “However, local residents engage in less criminal activity at the start of the boom with a smaller effect in later years.”

In addition, Street found that effects were most pronounced for residents that do not also receive royalty payments.

“Taken together, results suggest that residents reduce their criminal activity in response to improved job opportunities, but that other changes from local economic shocks, such as peer composition, seems to offset this effect.”