Economic impact of mining can be over-stated, according to PC

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:

Resources sector jobs multiplier

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:

The use and abuse of economic modelling in Australia

(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:

War on Multipliers

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1 Response to Economic impact of mining can be over-stated, according to PC

  1. The Happy Hillbilly says:

    That’s a good point there Gene. The industry is talking it’s own book, which I to be expected I guess.

    Certainly, the winding down of the enormous mining investment boom should free up labour for other industries who struggle to compete with the high wages that have been available to workers in the mining sector.

    But whether or not the industry’s assumption that if not for it, many jobs would not exist can’t really be tested until the boom winds down. Part of the reason that mining wages are so high (apart from the surge in commodity prices and the difficulty in getting people to work in remote locations where much of the mining takes place) is that in the beginning, the industry had to poach workers from an economy that was already growing strongly with falling unemployment thanks to the biggest private sector credit boom in our history – this process appears to have about run it’s course and even ultra-low interest rates are only sparking fairly modest lending growth.

    So I would say that if you took away mining before the GFC, we could still have experienced solid jobs growth. Whether this will still be the case over the next few years remains to be seen.

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