Decreasing coal production in Eastern Kentucky has exacerbated the region’s difficulties, says Cleveland Fed analyst

While the recent bankruptcies of several large coal mining firms may have come as a surprise to some observers, the economic decline of eastern Kentucky’s “coal country” has been years in the making, says Matt Klesta, a policy analyst at the Federal Reserve Bank of Cleveland. In the first of a four-part series examining eastern Kentucky’s transition away from a coal-centric economy, Klesta says the confluence of cost, competition, and regulation has accelerated the region’s economic decline, while at the same time, stimulating action to counter it.

Writing in Forefront, the Cleveland Fed’s showcase of policy ideas, Klesta says that:

• Coal production in eastern Kentucky has been declining for a quarter century. “Early on, as easier to reach coal seams were exhausted, production increased in western states where production costs were lower,” says Klesta. “The national share of coal produced in eastern Kentucky declined from 13 percent in 1984 to 4 percent in 2014, while Wyoming’s share increased from 15 percent to 40 percent.” Of late, says Klesta, “more stringent emission regulations have caused many coal-fired electrical power plants across the country to either shut down or convert to natural gas. This decline in demand has led some of the largest US coal producers to declare bankruptcy.”
• Coal mining employment has been declining for more than 60 years, but is still important to the region. “As a result of improved mechanization and the increased use of surface mining which requires less labor, coal mining employment in eastern Kentucky declined 92 percent from its 1948 peak, a loss of more than 61,000 jobs,” says Klesta. Despite the decline, Klesta says Kentucky still has an above-average share of coal-mining jobs.
• Decreasing coal production has led to a nearly 40 percent decline in severance tax revenue for the state, straining city and county budgets that have become dependent on the tax revenue for maintaining services.
• The region continues to grapple with deep-rooted social issues spanning generations, including high poverty and drug abuse rates.

Read Eastern Kentucky: A Region in Flux

Interested in snapshots of the economic conditions in selected MSAs in the Cleveland Fed's region — Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia? Visit our Metro Mix page.

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell, doug.campbell@clev.frb.org, 513.455.4479