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The Economics of Mineworkers

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The Economics of Mineworkers

During the classical period of gold rushes during the latter half of the 19th century, going to work at a gold mine (as a gold prospector) was an independent, entrepreneurial endeavor. In the 20th century and beyond, however, mineworkers have become more of a marginalized labor group.

The economics of being a mineworker can be tricky, resulting in wildly disparate outcomes for these employees depending upon industry cycles and a specific mine's circumstances.

Labor Adding Value

mineworkersIt's sometimes overlooked that the job that mineworkers do is especially dangerous. (In fact, this is why many mining firms are turning toward automated methods that keep the human element out of harm's way.) Accordingly, these employees have frequently succeeded in securing high pay grades for their labor. This was especially true during the bull market in commodities that came to an end around 2012.

For instance, mineworkers can earn impressive six-figure salaries in Australia, where gold mining remains an integral—and growing—part of the country's economy. Skilled miners are generally compensated well due to the dangerous nature of their work in addition to the fact that these workers are required to spend weeks at a time at remote sites and venture underground.

Mineworkers Vulnerable to Layoffs

Unfortunately, high-skilled workers are usually the first to go when mines are looking to cut costs. This is because they become short-sighted when money is tight and, in the pursuit of profit, executives often fail to see the immediate return on investment (ROI) from such workers.

layoffs-unemploymentAccording to corporate consultant Roger Dixon for Mineweb, "Gold mines traditionally shed a range of valuable, high-level scientific and technical skills when profits are under pressure, as these roles are considered to have less immediate value to the rate of production." He continues, "However, the sector pays the price for this, as these are generally the people who can innovate lower-cost production in the longer term."

Compounding the problem is the reality that productivity has indeed been falling, at least in South Africa's gold and platinum mining sector: the "average output per employee in SA’s mining sector has declined by 21% in the past 15 years—a compound rate of 2.9% per year. Hardest hit has been the platinum sector, with an average annual decline of 4,2% in kilograms produced per employee since 2001." Dixon goes on to cite a 35% decline in labor productivity in the South African gold sector in the span of less than a decade. In Australia, capital productivity (essentially a measure of how effectively money is spent) has dropped 45% since 2000.

Crafting a Solution

gold mineworkerBeyond the need for sustainability in addition to profitability, the worker productivity problem is also pressured by myopic shareholders. The mining sector as a whole is under threat by the notion that investors and shareholders have the best interest of the company and its employees in mind; rather, they are driven only by the short-term outlook. They prioritize immediate returns over the long-term viability of the company's operations.

Where the fate of mineworkers are concerned, Dixon makes a valid point: "It is likely that jobs will be lost as productivity gains are made, but many more jobs will be shed in any event if mines cannot stay open." Regardless of the cause, the loss of mining jobs and the conflict between fair pay and corporate profits is unavoidable as the industry expands. Soberly planning for the future would appear to be the course of action that most benefits all parties involved—executives, employees, and investors.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

About the Author

Everett Millman

Everett Millman

Analyst, Commodities and Finance
Managing Editor

Everett has been the head content writer and market analyst at Gainesville Coins since 2013. He has a background in History and is deeply interested in how gold and silver have historically fit into the financial system.

In addition to blogging, Everett's work has been featured in CoinWeek, Advisor Perspectives, Wealth Management, Activist Post, and has been referenced by the Washington Post.

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