Productivity Growth Low in the Oilfield Machinery Industry
Friedman, Brian L., Herman, Arthur S., Monthly Labor Review
Output per employee hour in the oilfield machinery industry grew at an average annual rate of 1.2 percent between 1967 and 1983, compared with a 2.4-percent rate for the entire manufacturing sector. During this period, output grew at an average annual rate of 8.1 percent, while average annual growth in employee hours was 6.8 percent.
This industry has been strongly influenced by worldwide changes in the price of oil with resulting shifts in production of crude oil and natural gas. Increases in oil prices and expectations of future oil price increases have led to spurts in activity in the oilfield machinery industry, followed by periods of slower output growth or output declines as oil prices stabilized or dropped.
Long-term gains in productivity have reflected some innovations in machining techniques, such as numerical control and improvements in handling and storing materials. However, this industry is rather labor intensive, making a variety of products with highly specific requirements for individual customers. Large increases in output have generally been offset by similar jumps in employment, leading to overall modest productivity growth. Sharp gains in capital expenditures, spurred by rapidly increasing oil prices, were more in the nature of duplicating facilities to meet growth in demand rather than expenditures for more advanced types of technology.
The oilfield machinery industry produces equipment for the drilling of oil and gas wells and equipment to control the flow of oil and gas from producing wells. This includes surface and subsurface drilling equipment for both rotary and cable tool types of drilling operations. Waterwell and blasthole drilling equipment are made in this industry, as is portable drilling equipment. Equipment for offshore oil drilling is produced and sold to the shipbuilding industry, which manufactures the offshore platforms. Subsea wellhead equipment is also produced.
Trends in productivity and output
The productivity in this industry recorded a distinct change between the 1967-73 period and that of 1973-81. This change can be related to the impact of the Mideast oil embargo, which began in 1973. In 1972, a third period began, characterized by a sharp drop in demand. (See table 1.)
During 1967-73, productivity grew at a rate of 3.5 percent, with its greatest gains at the end of the period, in 1972 and 1973. The productivity trend reflected an average annual gain of 4.8 percent in output and 1.2 percent in employee hours. During this period, productivity declined in only one year--1969.
After 1973, there was a turnaround and productivity fell off. Despite a boom in output, productivity recorded a decline over 1973-81. Spurred by oil shortages in 1973-74 and again in 1979, the price of crude oil quintupled during this period. Output in the oilfield machinery industry increased at an average annual rate of 10.9 percent from 1973 to 1981. Average annual increases of 11.8 percent in employee hours, however, led to an overall average annual decline of 0.8 percent in productivity.
There were very large output increases in 1974--31.0 percent--and in 1978--24.1 percent. Toward the end of the period, very rapidly increasing oil prices and expectations of continuing oil price increases beginning in 1979 led to another boom in demand for industry products. Output increased 14.4 percent in 1980 and 30.2 percent in 1981, when demand peaked.
Many industry products, especially the oil drilling rigs themselves, are reused in the exploration for oil and therefore can be stockpiled. When drilling activity slows and the need for oilfield machinery is filled, industry demand slumps rapidly. Periods of strong output growth are usually followed by periods of more modest growth or declines. Therefore, during 1973-81, despite the overall high rate of growth, output posted only moderate gains in 1975, 1977, and 1979. …