Friday, May 10, 2013

How Oil Prices Influence Employment

There is an insidious side effect of rising gasoline prices. As people spend more money on gas, they spend less money on other things, and that causes the loss of jobs.

“Since consumer spending is the main driver of the U.S. economy,” says Mark Cooper, Research Director of the Consumer Federation of America, “when speculators, oil companies and OPEC rob consumers of that much spending power, the inevitable result is a dramatic reduction of economic activity and employment.”

In Cooper’s study of the effect of oil prices on jobs, he discovered that every time oil prices have spiked since World War II, we’ve had a recession in America. In his study, he showed that because oil was about $30 a barrel higher than “costs or historic trends justify,” gas prices rose by a dollar a gallon in one year (from the summer of 2010 to the summer of 2011), which drained about 200 billion dollars from the economy. This is about two percent of consumer spending. That doesn’t seem like much, but two percent less spending (200 billion dollars) created the loss of hundreds of thousands of jobs.

Another way to look at it is that because most of our cars are not warranted to burn anything but gasoline, we imported about $500 billion dollars per year of oil, sending that money out of the country. That would have paid five million workers $100,000 a year! But the money leaving our country just leaves — doing nothing for us. If the same money was paid to workers here, it would have a huge ripple effect in our economy because that money would then be used to buy other goods and services in America.

- Excerpted from the book, Fill Your Tank With Freedom.

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