South-Westerns' Economic News Summaries
Want a Job? Try Mining in Australia
Subject scarcity of mining labor causes shortfall in commodities production
Topic Supply and Demand; Labor Markets
Key Words

mining, commodities, labor shortage, salary, cost

News Story

Would you want to work in an industry that requires specialized skills; demands long, sometimes, dangerous hours; requires you to work at remote, often deserted locations, and that suffers from uncertain effects from business cycles? Well, mining companies have jobs for you!

Demand for commodities used in production, including copper, zinc, aluminum, and nickel has been soaring in recent years, especially as manufacturing production has increased in India and China. The price of nickel has increased threefold since 2001, and an index of various commodities prices is 50% higher than in 2001. As metal commodity prices continue to rise, mining companies have been searching for more sources of the commodities to take advantage of high demand and hence, high prices.

The problem? They can’t find the workers. Some don’t want to work in remote areas; others are able to find work for comparable wages elsewhere. Some firms find it difficult to find people with the requisite skills to work in mining. The result? Vast increases in salaries to try to attract young, talented workers into mining. Instrumentational electricians, for example, can now make up to $150,000 per year--about double what they could have earned five years ago. Further, mining companies have been known to “poach” workers from other mining companies, stealing them from off the other company’s lot by offering higher salaries.

Australia’s largest gold mining company, Newcrest Mining, was over budget on a recent gold project by about $150 million due to cost pressures and labor shortages. BHP Billiton, another Australian mining company, wants to increase its capacity by 25% by increasing production in northwestern Australia. It is finding, however, that such production increases are less and less cost-effective as a result of the labor shortages.

Questions
1.

Use a graph of supply and demand to indicate what is happening in the market for mining labor in Australia.

2. Based on your graph in problem 1, is the market in equilibrium? Why or why not?
3. As the required marginal productivity of workers increases due to increased technology requirements, what happens to the demand for labor? Illustrate your answer with a graph.
Source “Patrick Barta. “Lack of Qualified Workers Strains Mining Companies.” The Wall Street Journal. 18 August 2005. A1+. http://www.wsj.com
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