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The Economic Impact of Coal in Appalachian Kentucky

Jonathan M. Roenker

In the Appalachian region, particularly in the mountains of eastern Kentucky, the importance of the coal industry looms large in most facets of the lives of this region’s citizens. This article examines the current significance of the coal mining industry in coal producing Appalachian counties in Kentucky by examining a number of economic indicators. Kentucky coal producing counties, compared to other coal producing counties in the Appalachian region, are often particularly more dependent on coal as is revealed by the high percentage of coal mining earnings and employment relative to total earnings and employment in those counties. This heavy dependence on the coal industry in Kentucky coal producing counties often leaves these counties susceptible to changes in the fortunes of the industry. As a result, losses in coal mining earnings in these counties often leads to increased poverty and dependence on social welfare programs. In this vein, this article also examines the dependence of Kentucky coal producing counties on social welfare programs in comparison to other counties in the Appalachian region.

* This article is based on and draws from the 2001 University of Kentucky Center for Business and Economic Research publication "A Study on the Current Economic Impacts of the Appalachian Coal Industry and its Future in the Region." This research was sponsored by the Appalachian Regional Commission.

Introduction

The Appalachian region of Kentucky has long been dependent on the rich coal mines that dot the landscape. The coal industry is an industry of booms and busts, and hence the welfare of the Appalachian region in closely tied to the health of the coal industry. Energy-related issues are always of national importance, especially during periods of economic uncertainty or instability. In the Appalachian region, particularly in the mountains of eastern Kentucky, the importance of the coal industry looms large in most facets of the lives of this region’s citizens. As a result, the importance of this industry in the local economy often leaves residents vulnerable to the changing winds of the industry. Given this dependence, small changes in the demand for coal in these coal-dependent counties can often bring about drastic changes in the local economy.

This article examines the current significance of the industry in the Appalachian counties in Kentucky by examining a number of economic indicators of the influence of coal mining on the region.* The article also seeks to identify where local economies are most dependent on the coal industry and also those counties where the economic impact of the industry on the county is the greatest. Additionally the impact of coal on other indicators of regional economic health including, welfare and income transfer programs, is examined. The article investigates these issues using data from the Department of Energy’s Energy Information Administration and the Department of Commerce, Bureau of Economic Analysis.

The Appalachian Regional Commission (ARC) was established by act of Congress in 1965 in order to better promote and support economic and social development in the Appalachian region of the country. Much of the Commission’s resources are devoted to developing a strong economic base in the region as well as helping to build and strengthen the region’s infrastructure. Also, as a result of the Congressional Act, the Appalachian Region was clearly defined. The ARC region in Kentucky includes the counties displayed in Map 1. Map 1 also indicates which of the ARC counties are major coal producing counties.

MAP 1
ARC Region and Major Coal Producing Counties in Kentucky

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Current Situation in Appalachia

In the Appalachian Region, Kentucky ranks second only to West Virginia in terms of total coal production as seen in Table 1. Table 1 provides several key descriptive figures concerning the importance of the coal industry in ARC counties in several key states. These coal producing counties, displayed in Map 2, are the focus of this article and all references from here forward are to these coal producing counties. Employment in those Kentucky coal producing counties is particularly focused in the coal mining industry with coal mining employment representing almost fourteen percent of the total employment in these counties. Similarly, coal mining earnings represent over nineteen percent of total earnings in those same counties. In Appalachian Counties in other large coal producing states, the picture can be quite different. West Virginia is the largest coal producing state in the Appalachian Region, but employment in the industry represents only 6.1% of the total employment in its coal producing counties. Similarly, coal earnings in those same counties comprise only approximately ten percent of total earnings in the coal producing counties. Pennsylvania, the third largest producer in the region, exhibits an even lower dependence on the coal industry.

 

Table 1
Descriptive Statistics About The Coal Mining Industry in Coal Producing Counties in Selected ARC States.

Kentucky

West Virginia

Pennsylvania

Total Coal Production

120.9 million

173.7 million

76.2 million


Coal Mining Employment

13,061

18,937

10,409

As Percentage of Total Employment

13.70%

6.10%

0.60%


Coal Mining Earnings

$719.6 million

$1.246.7 million

$1,025.7 million

As Percentage of Total Earnings

19.10%

9.80%

1.50%


Coal Output

$2,979.5 million

$4,530.0 million

$2,033.1 million

Source: Energy Information Administration, Coal Industry Annual


MAP 2
ARC Region and Major Coal Producing Counties



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The figures in Table 1 illustrate the importance of coal in Kentucky’s Appalachian counties. The lack of a strong presence of other industries in the region is quite evident given the large percentage of employed persons working in the coal mining industry. While production in West Virginia is significantly higher than in Kentucky, the work force is significantly more diversified with only six percent of the employed in the county holding a job in the coal mining industry. Likewise, coal mining earnings in West Virginia comprise a significantly smaller portion of the total earnings in ARC counties in that state, further cementing the notion that Kentucky Appalachian counties are particularly dependent on the coal mining industry for their livelihood.

County Level Dependencies

Within the ARC region in Eastern Kentucky, there exist varying degrees of dependence on the coal industry. Previous measures including employment and earnings have been used to demonstrate this dependence at the state level in comparison with other large coal-producing states. At the county level, the use of gross county product vividly reveals just how large this dependence can be. Like gross national product, gross county product (or value added), in concept, is equal to the county’s gross output (sales or receipts and other operating income, commodity taxes, and inventory change) minus intermediate inputs. Thus, gross county product (GCP) is a good measure of the final output of the county’s economy. Map 3 displays coal GCP as a percentage of total GCP in the ARC counties in Kentucky and the entire ARC region.

MAP 3
Coal Gross County Product as a Percentage of Total Gross County Product
in ARC Counties

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The map reinforces the notion that many of these counties are highly dependent on the coal industry to support the county economy, in particular the far eastern counties of Martin (47.1%), Pike (34.3%), Letcher (30.3%), Knott (54.0%), and Harlan (31.3%) and are more highly dependent on coal than most of the ARC counties. All of these counties rely heavily on coal production and its associated activities to produce approximately one-third or more of the county’s value added. These same counties also have extremely high coal employment to total employment ratios with coal employment in Knott and Martin Counties totaling 41.1% and 44.4% of total employment, respectively.

Economic Impact of Coal

While the gross county product and employment situation goes far to demonstrate the dependence of many Kentucky counties on the coal mining industry, the economic impact of the industry on those counties actually exceeds the figures discussed above. The coal mining industry often supports much of the economic activity in the economies of these major coal-producing counties in the ARC region in Kentucky. For example, coal companies often support the activities of their suppliers in the manufacturing, machine shop, construction, and business service industry. In this example, the wages earned by the employees of the coal mining companies support their spending for a wide range of retail goods and services throughout the economy. This additional spending indicates a larger economic impact for the coal mining industry than was discussed earlier. In this section, the total economic impact of the coal mining industry on Kentucky Appalachian coal producing counties is considered, including both the direct and "multiplier" effects of the industry. The "multiplier" effect occurs as coal companies spend locally on supplies and coal company employees spend on goods and services required by households. The total economic impact on earnings, employment, and output, as seen in Table 2, is significantly greater than the direct impact discussed in the previous section.

Table 2
Economic Impact of the Coal Mining Industry in Selected
ARC States.

Kentucky

West Virginia

Pennsylvania

Total Coal Production

120.9 million

173.7 million

76.2 million


Total Employment Impact (jobs)

30,300

43,600

27,100

Share of Total Employment

31.90%

14.60%

1.60%


Total Earnings Impact

$1,280.3 million

$1,935.7 million

$1,625.7 million

As Percentage of Total Earnings

34.00%

15.20%

2.30%


Coal Output

$4.4 billion

$6.9 billion

$2.9 billion

Source: Energy Information Administration and author’s calculations

The calculation of the indirect, induced, and total economic impacts are based on the direct impacts outlined in the previous sections.1  Table 2 shows an even greater dependence on coal in the Kentucky ARC counties than is revealed by the direct impacts in Table 1. Table 2 reveals that the total economic impact of the coal mining industry on earnings in Kentucky coal producing counties represents 34% of total earnings in those counties. The total employment impact of the industry represents almost 32% of the total jobs in these same counties in Kentucky. The other large coal producing states in the ARC region, Pennsylvania and West Virginia, show a much lower impact of the industry on earnings as well as employment.

Map 4 again reinforces the fact that many of the Kentucky ARC coal-producing counties are highly dependent on the industry. As in the direct impact, the counties of Martin and Knott once again emerge as two of the counties most highly dependent on the coal industry. Martin (66.2%) and Knott (75.7%) derive well over 50% of their total employment from the coal industry, while Pike (52.0%), Letcher (44.2%), and Harlan (44.9%) Counties all have coal mining shares of employment in excess of 40%. Similar to the impact at the state level seen in the comparison of Tables 1 and 2, the total economic impact at the county level magnifies the degree of dependence on the coal mining industry of many Kentucky coal producing counties.

MAP 4
Total Coal Mining Employment Impact as a Share of Total Employment
in ARC Coal-Producing Counties

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A map of the total economic impact of coal mining earnings as a share of total earnings in these same counties, Map 5, tells much the same story as the coal mining share of employment map. Again, the counties of Martin (72.1%), Knott (70.1%), Pike (50.6%), Letcher (41.2%), and Harlan (44.8%) have some of the highest ratios of coal mining earnings to total earnings when measuring total economic impact in the county.

MAP 5
Total Coal Mining Earnings Impact as a Share of Total Earnings
in ARC Coal-Producing Counties

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While income, earnings, and employment are important aggregate indicators of the economic health of a region, they are not the sole indicators. Due to the fact that the coal mining industry accounts for such a large share of the local economy in many of the coal producing counties in the Kentucky ARC counties, changes in the industry can often have a large and dramatic impact on the rate of social welfare dependency in these counties.

Recent research concerning the linkage between the performance of major industries and key socioeconomic indicators, including social welfare dependency, has been explored by Dr. Dan A. Black, as well as others.2 The coal mining industry frequently offers relatively high paying jobs to workers with low general skill levels, although it is most often the case that these workers have developed industry-specific skills for use in coal mining. The result is that losses in coal mining earnings in these counties often leads to increased poverty and dependence on social welfare programs. The opposite is also true. As earnings in the industry increase, poverty and social welfare dependency often decrease.

Map 6 shows Temporary Aid to Needy Families (TANF) payments per capita by county in the Appalachian region. Higher payments from this program often represent higher poverty rates and lower rates of income. It must be kept in mind, though, that these payments may also reflect state-to-state differences in the level of support that is allowed in the state. Together, however, these suggest that higher payments may reflect the fact that an area relies more heavily on the federal and state government and that also lower income and higher poverty are more prevalent in that area.

MAP 6
TANF Payments per Capita by County in the ARC Region

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Map 6 reveals that a majority of the counties with the highest per capita TANF payments are in the Kentucky coal producing counties, as represented by the darkest shading on the map. Many of the per capita payment levels in the Kentucky counties are more than twice as large as the payments in the northern and southern portions of the Appalachian region.

Further, Map 7, showing Food Stamp payments per capita, reinforces the notion that Kentucky coal producing counties are particularly dependent on federal and state support programs, particularly when compared to coal producing areas in the northern and southern portions of the ARC region.

MAP 7
Food Stamp Payments per Capita by County in the ARC Region

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Conclusion

The importance of the coal mining industry in Appalachia varies from state to state and even county to county. In the coal producing Appalachian counties in Kentucky, the dependence on coal is particularly great. Relative to counties in other coal producing states in the region – particularly states in the northern and southern portions of the ARC Region –, Kentucky coal producing counties are often particularly more dependent on coal as is revealed by the high percentage of coal mining earnings and employment relative to total earnings and employment in those counties. The total economic impact, including both direct and indirect impacts, further reinforces this notion, with the earning impacts in two Kentucky counties exceeding 70% of total county earnings. In several more counties, the earnings impact exceeds 40%.

This heavy dependence on the coal industry in Kentucky coal producing counties often leaves these counties susceptible to changes in the fortunes of the industry. As a result, losses in coal mining earnings in these counties often leads to increased poverty and dependence on social welfare programs. The Kentucky coal producing counties are also relatively more dependent on social welfare programs, including TANF and Food Stamps, than other counties in the region. This is once again particularly true when comparing the Kentucky coal producing counties to those counties in the northern and southern portions of the region.

Endnotes

  1. Output was calculated by multiplying total coal production in tons by the average price Per ton. 

  2. Black, Dan, Kermit Daniel, and Seth Sanders, 1996. "How Much Does Local Economic Growth Help the Poor?" Working Paper (January). and Black, Dan, Terra McKinnish, and Seth Sanders, 1999. "How the Availability of High-Wage Jobs for Low-Skilled Men Affects AFDC Expenditures: Evidence from Shocks to the Coal and Steel Industries." Working Paper (June).

This document is a of CBER, Center for Business and Economic
Research, located at the University of Kentucky, Gatton College of Business and Economics.