The Productivity Commission released a very interesting research note earlier this month titled On input-output tables: Uses and abuses. Input-output tables are the matrices that show how all the industries of the economy are connected to each other – e.g. they show the dollar value of grains purchased by the food manufacturing industry, or business services purchased by the mining industry. These tables allow the calculation of multipliers which estimate the direct and indirect impacts of a change in output of a particular industry.
Recently this type of analysis has been used by the Queensland Resources Council (QRC) to argue that the resources sector is (directly or indirectly) supporting several hundreds of thousands of jobs in Queensland. While I believe the resources sector makes an important contribution to Queensland and will continue to do so, as I’ve previously commented on, the estimates presented by the QRC are very optimistic:
Basically the problem with a lot of the analysis undertaken is that it assumes money and jobs generated by the mining industry, for example, wouldn’t otherwise exist if the industry wasn’t there. That is, it ignores the possibility that people could find other jobs and other ways to make money. In economics terms, it ignores the opportunity cost of using resources in a particular sector. This is particularly important in relation to mining, which because of its rapid expansion pulled a lot of workers out of other industries. And, if mining employment contracts substantially as expected, I expect former mining workers will, over time, find jobs in other sectors. Hence the economic impacts of mining (or any other sector) can be over-stated.
Richard Denniss of The Australia Institute has been highly critical of the very optimistic job creation claims of the resources sector and was basically backed up by the Productivity Commission in its new research note. Richard’s paper is worth a read:
(Hat tip to Richard by the way, because I learned of this new PC note via a Facebook post of his.)
I also recommend this post at Loose Change: