Mining is making us lazy

Well…forgive the headline. Mining making us less “productive” would be more accurate. I’ve certainly been less than nimble in bringing to your attention a new study by the Australia Institute into Australian productivity. It was released six days ago but better late than never.

And what a fascinating study it is. Explosive even:

The recent debate about productivity trends in Australia has revolved around the reported decline in labour productivity growth. For example, the new Secretary of the Treasury, Dr Martin Parkinson recently stated:

Australia’s productivity growth measured in terms of both labour productivity and multifactor productivity has slowed, and there is little reason to believe it will improve in the immediate term.

Similarly, the latest Reserve Bank of Australia (RBA) Board minutes stated ‘Australia’s productivity growth over the past five to ten years had been weak’.

The national decline in the trend rate of productivity growth has in turn been used to justify the need for further labour market reform, for workers to lower their expectations about future wage rises and for further microeconomic reforms.

The problem is, however, that a detailed examination of the national productivity figures makes it clear that the productivity of Australian workers is actually rising quite rapidly. In fact, the apparent decline in labour productivity vanishes once the data is adjusted for the very large reductions in productivity in the small, but rapidly growing, mining sector.

And here is the data, charted quite nicely:

The analysts conclude that the decline in mining is a result of:

The unprecedented haste with which mining companies are seeking to extract Australia’s mineral resources is inevitably driving down the efficiency and productivity of our mining industry. As companies rush to build new mines as quickly as possible and dig deeper than they previoutsly considered efficient the output per worker will continue to decline. As more  and more people are employed in the mining industry national labour productivity growth will  continue to decline.

And that the implications for other sectors should be observed by policy-makers:

In his speech Dr Parkinson quoted figures showing that Australia’s annual productivity growth slipped from 2.1 per cent in the 1990s to 1.5 per cent in the 2000s. It is far more illuminating, however, to describe the productivity performance of the non-mining and mining sectors of the economy separately. This can be done by removing both mining output and the hours worked in the mining industry from the national figures and analysing the residual.

When such an adjustment is made productivity growth actually increases from the 2.1 per cent cited by Dr Parkinson to 2.4 per cent in the 2000s in the non-mining sectors of the economy. Figure 2 provides a comparison of the trend in productivity in the mining and non-mining industries over the period 1995 -2010.

The results of this disaggregation make clear that the existing industrial relations and wage setting arrangements in Australia are not acting as an impediment to productivity growth. The measured decline in average labour productivity is being caused by the unprecedented haste with which Australia’s mineral resources are being extracted. That is, high commodity prices are encouraging mining companies to exploit mineral deposits that require more energy, more capital and more labour to extract an additional tonne of output.

As more and more workers flood into the rapidly growing mining sector the adverse impact on the average rate of productivity growth will be exacerbated. It would be inequitable, not to mention ironic, if policy makers were to confuse this measured decline in average productivity with some failing on the part of employers and employees in the non-mining sector. On the contrary, if it were not for the high rate of productivity growth in the non-mining sectors then Australia’s average labour productivity would be much lower.

I learned something today.

Mining Australias Productivity

David Llewellyn-Smith
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Comments

  1. No, I think the headline is perfectly appropriate.

    On the other hand, we’re likely to see some big productivity gains in the non-mining economy, because people are working twice as hard just to stand still, as the rampaging dollar gobbles profit margins.

    Miners: We’re getting laizer, but we’re getting richer too.

  2. Not all that suprising after the big gains made in the 80s and 90s. Huge gains across the board technological, and operating. (IR reform, the Superpit, Longwalling, block caving). Low prices, and thus margins, drove innovation, reform and M&A.

    To that you can add a large number of inefficient investments made in the late 90s and early 00s by the industry (Beenup, Ravesnthorpe nickel, HBI)

    The introduction of new labour is certainly having an effect on sites I have been at. Given the capital intensity of the industry small differences in skills and experience have large effects on output.

  3. innocent bystander

    “I’ve certainly been less than nimble”
    yes, come on HnH lift ya game 🙂

    bet you the IR reformists won’t be drawing any attention to this report.

  4. “The measured decline in average labour productivity is being caused by the unprecedented haste with which Australia’s mineral resources are being extracted. That is, high commodity prices are encouraging mining companies to exploit mineral deposits that require more energy, more capital and more labour to extract an additional tonne of output.”

    This is apparent when you think about the fact that average blue-collar workers in the mining sector are getting paid $150 000 per year or more and mining companies are increasingly going to the expense of flying entire workforces of thousands in and out every shift.

  5. The facts in the report may be correct, but this is the barrow-pushing part:

    “Under such circumstances it would be both inefficient and inequitable to suggest that workers in the non-mining sector should accept lower than average wage growth due to the big decline in the productivity of the mining industry.”

      • What is going on here, I think, is the Australia Institute is responding to recent criticisms that the re-regulation of the labour market has impacted on productivity. So they are claiming that there really hasn’t been a drop in productivity, other than that caused by miners. Therefore, no need to revisit the IR laws.

  6. OK. I’ve had a quick look. Under-grad stuff.

    ‘A major explanation of this decline is related to the fact that high commodity prices are encouraging mining companies to pursue less and less productive mine sites.’

    This is normal operational practice and under any commodity regime. Bluewater Horizon for example. It transforms otherwise worthless ‘dirt’ into something of economic benefit.

    ‘That is, high commodity prices are encouraging mining companies to exploit mineral deposits that require more energy, more capital and more labour to extract an additional tonne of output’

    Well, der. See above.

    ‘As more and more workers flood into the rapidly growing mining sector the adverse impacton the average rate of productivity growth will be exacerbated. It would be inequitable, not to mention ironic, if policy makers were to confuse this measured decline in average productivity with some failing on the part of employers and employees in the non-mining sector.’

    My strong view here is that the authors have insufficiently disaggregated resources construction workforce and mining production work force. There has been no flood to what is strictly speaking mining, there has been to associated disciplines. In the investment boom stage, enormous resources capital and manpower are employed. Any approximation of these figures at all would fatally flaw their argument.

    The investment construction phase cannot be included in any analysis of the mining phase, mining productivity really only measurable on completed projects and then I guarantee you, productivity would be stratospheric at present. Equally, the construction phase, would also show high levels of productivity.

    “The unprecedented haste with which mining companies are seeking to extract Australia’s mineral resources is inevitably driving down the efficiency and productivity of our mining industry”

    ‘The unprecedented haste’ – says it all really. Clearly not supporters of a resources boom.

    The only unprecedented haste I can see is the manner in which this report must have been prepared. Any laziness in productivity emanating the The Australia Institute itself.

      • What do you expect given the quality of their report – it is flawed. If they have bundled the investment phase with mining production do you not think this gives rise to incorrect data. I don’t see how it does not.

      • I am saying they are two distinct activities. You cannot extract resources until a project is complete. Hence the need to disaggregate the data.

        One set ‘mining investment construction productivity’ the other ‘mining production productivity’.

  7. The graph suggests we’re up the creek,
    as all the minerals start to peak.

    All the more reason to extract some rent, before the mines are economically spent.

  8. Mining should also be a problem in NZ as they are experiencing the same drop in productivity, did they remove workchoice ? LOL

  9. Will have to review this in the context of Saul Eslake’s work at Grattan Insitute.

    Just last week I reviewed an Australia Institue report to do with e-commerce and retail and it was the worst report I have ever read. It was full of errors to do with underlyng assumptions and sweeping inferences and also basic logical fallacies: ought to have been corrected before print. They will have to work hard to turnaround the impression they created with that sloppy report.

    • Wait until you read this one! It’s all there. Poor analysis to support a flawed hypothesis, loaded/emotive language embellishing underlying assumptions…and most the other stuff you noted in the report you mention.

  10. Well as near as I can tell, according to this theory, the best thing we can do is stop mining, add 20 or 30 thousand more ‘stop n go’ men (sorry persons!), open up a whole lot more computerised retail outlets, serve more coffee, train more ‘life coaches’ at universities and employ a whole lot more public servants armed with computers and fast printers.

    This notion of productivity is plain baloney.

      • Since the productivity of teachers, nurses, police/fire/ambulence officers and others can’t really be measured in units of output that make sense in terms of capitalist enterprises – I guess we should ditch the lot of them?

        Though at a financial training seminar a while ago, we were encouraged by a high-ranking official to think of schools as a business and children as the “product”.

  11. Note= the fact that we are a land richer in resources per head of population than any other nation on earth has made us lazy but not in the way this lot are surmising.

  12. This report is the biggest load of clap trap I have seen for some time. The data is just plane wrong. It dosent match the RBA data set and the graph is designed to fool you. They even say they have mixed capital and workforce data (but dont tell us how) and it finishes in 2009. Nothing gets me angryer than blatent political manupluation of a science like this. Spin f…..g spin.

  13. Dear Mr Houses and Holes.

    You may not have noticed, but I suspect you are suffering from the same strain of hubris that causes so many financial commentators (including the ones you so casually disdain) to lock themselves into untenable positions (and more than a few investment analysts/traders, to boot). Combined with the kind of group think apparent on this site, it can have a tendency to make one develop an instinctive defensiveness against perceived challenges. Great to see people back their opinions, but a little humility wouldn’t go astray. Dude.

    I’ll save you the response – Argumentum ad hominem, right ?

    • Exactly how am I locked into anything? I’m doing my best to provoke some discussion on the value of, and need to retain, manufacturing.

      I’m fully aware that I’m a fringe blogger and that my ideas are largely going to be ignored. I have some hope that, as in the case of housing, the broader media will follow and pick up the MB discussion.

      If I’m proved wrong and China grows uninterrupted and Australia with it for the next twenty years then I’ll be the first to admit I’m wrong.

      As well, I don’t sit atop a tower of baby-boomer self-importance declaring shiny truths for the likes of primitives like you to marvel at. I sit here all day in the muck and respond to criticisms from all comers. In seven months, I’ve banned only three people and only delete anything when its plain rude.

      Your use of the phrase “argumentum ad hominem” also suggests that you object to me holding several comments on this string to account. But they are a clear case of poor argument – that is, none provided.

      You’re confusing passion and polemic with hubris.

  14. Walt Disney's Frozen Head

    In addition to 3d1ks points above 3:47pm:

    http://www.macrobusiness.com.au/2011/08/mining-is-making-us-lazy/#comment-70115

    A major explanation of this decline is related to the fact that high commodity prices are encouraging mining companies to pursue less and less productive mine sites.

    Minerals and oil and gas are finite resources. By definition as you extract the “easier” extractable resources you then have to proceed to lower grades (if demand for the resources still exists). But it is also not clear whether the output per worker is isolated to workers directly involved in extraction. For example should exploration workers be included? By the simplistic measures of productivity being employed here, exploration and R&D are unproductive. (Maybe that is why this country has a poor R&D record relative to some other OECD countries? R&D is a drain on productivity so therefore get rid of it as BHP, Orica, Telstra and many other companies have done in part or total.)

    So given the desire to disaggregate the numbers these researchers probably should have disaggregated further.

    That is, high commodity prices are encouraging mining companies to exploit mineral deposits that require more energy, more capital and more labour to extract an additional tonne of output.

    A move to exploit lower grade resources is inevitable given these resources are finite. It may be hasty now because margins for miners are potentially quite high but at some stage in our future these lower grade resources would nevertheless be exploited.

    Figure 1

    The data is the article is thin at best but it would be interesting to correlate exploration expenditure with the mining productivity line. For example, and 3d1k probably has a more informed view, prior to the current boom miners had experienced a 20-25 year bear market in commodities. Expenditure on exploration and subsequent development of projects was a fraction of current levels. Increases in expenditure over the last 10 years probably correlate to declines in productivity.

    Likewise we could probably look at biotech and biopharma companies and observe that some are unproductive because they invest heavily in R&D.