Productivity in the Mining Industry: Measurement and Interpretation
Staff working paper
This paper by Vernon Topp, Leo Soames, Dean Parham and Harry Bloch was released on 18 December 2008.
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Productivity in the Mining Industry: Measurement and Interpretation (PDF - 852 Kb)- Mining typically accounts for around 5 per cent of Australia's nominal market sector gross domestic product.
- A 'once-in-a-generation' shock to demand for, and prices of, mining commodities saw this share rise to 8.5 per cent in 2006-07, stimulating substantial growth in new investment, employment, and profits.
- Yet output growth in mining in recent years has been weak at best, and multifactor productivity (MFP) has declined by 24 per cent between 2000-01 and 2006-07.
- Long lead times between investment in new capacity in mining and the associated output response can lead to short term movements in mining MFP unrelated to underlying efficiency.
- Around one-third of the decline in mining MFP between 2000-01 and 2006-07 is estimated to be due to this temporary effect. This effect was particularly important in the last few years of this period.
- Ongoing depletion of Australia's natural resource base is estimated to have had a significant adverse effect on long-term mining MFP.
- In the absence of observed resource depletion, the annual rate of mining MFP growth over the period from 1974-75 to 2006-07 is estimated to have been 2.3 per cent, compared with the measured rate of 0.01 per cent.
- Over the longer-term, MFP impacts of resource depletion have been offset by technological advances and improved management practices. An increase in the use of open-cut mining has been a key development, along with a general increase in the scale and automation of mining equipment.
- An expected rebound in mining MFP from 2008-09 onward may be delayed as a consequence of the decline in world prices for many mineral and energy commodities in mid-to-late 2008. Any temporarily idle capital associated with production cut-backs and mine closures will tend to lower MFP. On the other hand, significantly lower commodity prices may lead mining companies to cut costs, with a positive effect on MFP.
- Despite the impact of the fall in mining MFP, the sector has made a significant contribution to the strong overall growth in national income so far this decade through a substantial improvement in Australia's' terms of trade.
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