The Oil Crash Won't Derail The Labor Market Recovery

One of the fallouts from the tumble in oil prices has been massive job cuts in the energy sector.

During its earnings presentation on Tuesday, Baker Hughes said it expects to cut 7,000 jobs in the first quarter. Last Thursday, Schlumberger said that it was cutting 9,000 jobs - about 7.5% of its workforce.

This has some investors worried that the energy sector may slowdown the momentum in the US labor market,.

But according to Deutsche Bank's Joseph LaVorgna, these concerns are overblown.

"It is a common misconception that the dramatic expansion in US energy production over the past several years has been a significant contributor to job growth in the current business cycle," LaVorgna wrote in a note Friday. "This is simply not the case. In fact, the energy-related share of the labor market is lower today (1.4%) than it was in the beginning of the 1990s (1.8%)."

To compare how low this is, jobs in transportation-related industries make up 4.5% of the labor market, while the construction sector accounts for 4.4%. Also, most of the job growth in the current economic cycle has come from the services sector, LaVorgna wrote.

Here's a chart showing that if you took gas station employees, the share of workers in the energy sector is less than 1%.

The pace of job creation in the sector compared to the entire labor market is sluggish, in any case. LaVorgna adds that when US oil production doubled between 2005 and now, the ratio of energy jobs to the entire market increased by just a tenth.

So while low oil prices may hurt the energy sector, it's not likely to take down the entire labor market.