Economic & Workforce Briefing

Pennsylvania “1099” Employment in Marcellus Shale Core Industries

What often is described as “1099” employment is increasing steadily in the U.S., in Pennsylvania, and in industries developing Pennsylvania’s Marcellus Shale play.

“1099” employment is a commonly–used shorthand designation of the IRS status of compensation that firms pay.

Firms use Form W–2 to report to the IRS the wages that are paid to employees plus taxes withheld from these wages. Employees work for employers, who control the timing and performance of employees’ work and provide the space and the tools to perform work.

Firms report the nonemployee compensation of independent contractors earning over $600 during a year using IRS Form 1099. Independent contractors are hired by firms to deliver a product, but the firms do not control the means by which the contractors complete their work.

Independent contract work often is described as “1099” employment.

Firms can fulfill their production needs through independent contractors without the overhead typically associated with employees. Contractors are not employees. Firms do not pay for unemployment compensation or overtime with independent contractors. They can discharge independent contractors more easily than their own employees. Independent contractors are not eligible for firm–sponsored benefits. Firms typically are not responsible for the negligent acts of independent contractors. And, independent contractors cannot make Workers’ Compensation claims against a firm.

The Pennsylvania Center for Workforce Information and Analysis, a research unit of the Pennsylvania Department of Labor and Industry, identifies six industries that are at the core of Marcellus Shale development in Pennsylvania: crude petroleum and natural gas extraction; natural gas liquid extraction; drilling oil and gas wells; support activities for oil and gas operations; oil and gas pipeline and related structures construction; and pipeline transportation of natural gas.

Some analysts have pointed out that Pennsylvania “1099” employment in core industries in Marcellus Shale development has risen remarkably since 2008. However, as shown in a chart accompanying this article (“Proportion of ‘1099’ Employment….”), Marcellus Shale core industries consistently have had since at least 2001 a much higher proportion of “1099” employment than is observed in employment in the U.S. as well as Pennsylvania.

Some Pennsylvania industries have higher concentrations of “1099” employment than Marcellus Shale core industries (agriculture; and real estate, and rentals, and leasing), although concentrations are much lower in other industries (manufacturing; health care and social assistance; and accommodations and food service). Since 2001, Pennsylvania “1099” employment has grown notably in at least three industries in addition to Marcellus Shale core industries: finance and insurance; real estate, rentals, and leasing; and construction.  

The mix of “1099” employment in six Marcellus Shale core industries varies. As demonstrated in another chart accompanying this article (“ ‘1099’ Employment in PA Marcellus Shale…”), crude petroleum and natural gas extraction has the largest share, by far, of Pennsylvania “1099” employment. This industry will employ 59% of all workers in Marcellus Shale core industries in 2011.

Between 2001 and 2011, crude petroleum and natural gas extraction accounted for 63% of total employment growth in all Marcellus Shale core industries. During this period, this industry, by itself, created 95% of the growth of "1099" employment in core industries and 4.5% of “1099” employment growth in all PA industries.

According to the North American Industrial Classification System, crude petroleum and natural gas extraction involves the exploration, development, and production of petroleum or natural gas from wells.

Seven major occupations deployed in the crude petroleum and natural gas extraction industry employ a high proportion of “1099”workers during 2011: chief executives and general managers; roustabouts, helpers, and general laborers; front–line managers and supervisors; purchasing agents; welders; compressor operators; and mining, geological, and petroleum engineers. In fact, the Pennsylvania workforce data we analyzed revealed that all mechanics, technical writers, public relations managers, and janitorial workers employed by the Pennsylvania crude petroleum and natural gas extraction industry during 2011 are “1099” workers.

Some general trends in Pennsylvania “1099” employment are clear from the data we reviewed. First, Marcellus Shale core industries have employed a relatively high proportion of “1099” workers since 2001, a proportion that has increased remarkably since 2008. Second, within the six industries at the core of Marcellus Shale development, the largest amount and growth of total employment, as well as “1099” employment, has occurred in crude petroleum and natural gas extraction. And, third, some occupations—especially some occupations requiring substantial experience and expertise in the natural gas business—employ a high proportion of “1099” workers.

Several unanswered questions are left hanging. What proportion of “1099” employment in Marcellus Shale core industries includes Pennsylvania residents? Are independent contractors taking Marcellus Shale jobs in the Commonwealth because Pennsylvanians lack skills necessary in natural gas production? These questions are difficult to answer because publicly–available workforce data record the location of work performed, not the place of permanent residence of the worker.

Tracy Brundage, Penn College’s managing director for work force development and continuing education, noted during Fall 2010 that “In years past, most Marcellus well workers were from out of state….[but] a lot of companies that we’re meeting with now are saying most of the workers are Pennsylvania residents.”

A survey by the Marcellus Shale Coalition, an industry association, found that “74% of all new hires since 2008 have hailed from Pennsylvania.” In an April 2011 presentation to Governor Corbett’s Marcellus Shale Advisory Commission, the Pennsylvania Center for Workforce Information and Analysis observed that “71% of new hires in 2010 were from Pennsylvania…. [which is] not different from what is seen in other industries.”

From these observations and the workforce data we analyzed, we conclude provisionally that the number of Pennsylvania residents in “1099” employment is increasing in Marcellus Shale core industries. More decisive information could be available soon, however. In December 2010, the Center for Workforce Information and Analysis indicated that reporting information about “1099” employment and place of residence of Pennsylvania workers in Marcellus Shale core industries is part of its research priorities.