Australian Institute research: By what bizarre twist the Queensland Mining Boom may be a job destroyer?
Job creator or job destroyer? – an insightful analysis of the mining boom by the Australia Institute (updated with graph after Gina Rinehart’s foreign workers controversy broke out)
A very interesting paper released by the Australia Institute on 20/3/2012 is looking at a contrarian issue: the potential negative consequences of the mining boom on the Australian economy. Large structural changes coming on the back of it will inevitably create winners and losers. While there has been a lot of focus on what benefits the mining boom might bring to the nation, there has been less focus on the negative consequences. Their study uses the Queensland boom as a proxy to appreciate those consequences.
One line catches the reader’s attention: modelling for a mining project (the China First mine located in the Galilee Basin) has shown that under generous assumptions 1 non-mining job will be destroyed for every 2 mining jobs created.
If you apply this model on the rest of the sector, the Institute’s study finds that “it is possible that in the case of employment the boom’s negative consequences may well negate most of its benefits derived from the boom. It is possible that with a tight labour market and upward pressure on exchange rates, the net situation could shift from “ONE non-mining job lost for TWO mining jobs created” to “ONE non-mining job lost for ONE mining job created” (ie a zero gain, or even worse, a net loss of jobs). Besides, “new jobs are likely to be mainly short-term construction jobs, replacing longer term jobs in manufacturing, tourism and agriculture.”
Gina Rinehart’s foreign workers controversy in one picture… (yes, the Australia Institute study focuses on Queensland, but the logic is the same in Western Australia)
The point of flagging this research is not to sensationalise some doom and gloom of the boom, but to keep reminding policy makers and business leaders that Australia needs a strategy to be more than just a mining country. This research is important because it presents data and evidence supporting more instinctive calls made by those cautioning against putting all our eggs into the mining basket. And we are not just talking about environmentalists and Left activists: attendees at the Australian Davos Connection Future Summit in 2009 held entire working sessions on this very risk, uplifted at the time by the remorseful spirit that prevailed at the height of the GFC: “Things were going to change. We had learnt our lesson (albeit by proxy through Europe and the US). We were going to stop squandering the boom…”
The Australia Institute is kindly putting this critical question back on the table: what can we do to make sure the Mining Boom does not turn into too much of a good thing?…
{ leLaissezFaire – Sydney, 20 March 2012 }
References: Australia Institute’s media release and research paper
Source, Australia Institute, Matt Grudnoff, March 20, 2012
“On the back of record high commodity prices the mining industry in Australia is experiencing an unprecedented period of expansion. The value of our mineral exports has increased to the point where they now make up more than half of the value of all our exports. This increase combined with the huge inflow of capital to fund the mining expansion has been a significant factor in Australia’s rising exchange rate.
A higher exchange rate puts pressure on the non-mining sectors of the economy to remain competitive. Manufacturing in Queensland has declined 6.5 per cent over the past year and the number of international tourist coming to Queensland has fallen 6 per cent since the beginning of the mining boom as foreign travellers increasingly choose cheaper destinations. While some mining jobs are well paid, the reality for the 99 per cent of Queenslanders who don’t work in the mining industry is higher housing costs, higher mortgage interest rates and fewer jobs in tourism, manufacturing and agriculture.
In Queensland there are a large number of proposed mining projects that if completed will cause significant structural change to that State’s economy and Australia as a whole. Using Australian Bureau of Agriculture and Resource Economics (ABARE) statistics this paper examines the costs associated with 39 mining projects identified for Queensland.
These 39 projects together have capital expenditure of more than $55 billion and will employ an estimated 39,668 people. However, modelling for another mining project in Queensland, the China First mine located in the Galilee Basin, has shown that under generous assumptions one non-mining job will be destroyed for every two mining jobs created.That is, it is possible that the proposed mining projects could destroy almost 20,000 jobs across Queensland and Australia. The majority of these job losses, almost 15,000, will be in manufacturing.
Significantly, such an approach is likely to be an underestimate as it assumes that the higher wages offered by the mining industry will convince a pool of almost 20,000 currently ‘invisible’ workers to enter the workforce. It is difficult to see how this can happen with the present tight labour market. It also ignores that the mining boom will continue to drive the high exchange rate which will cause further job losses in other sectors of the economy.Research has shown that Australians overestimate the positive economic effects of the mining boom and little consideration is given to the economic costs. The mining boom will make large profits for the largely foreign owners of the mining companies and benefit those workers who are closely associated with the industry, but other Australian businesses and mortgage owners will have to contend with higher exchange rates and interest rates. While it is easy for proponents to talk up the benefits of individual mines, when they are considered together the overall impact is not as positive as the Australian public has been led to believe. The mining industry is quick to claim credit for job creation but is reluctant to take responsibility for any adverse impacts the expansion of their activities may cause.”
Australia Institute policy brief:
PB 36 Job Creator or Job Destroyer
source: PB 36 Job Creator or Job Destroyer
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