RDP 2013-02: Industry Dimensions of the Resource Boom: An Input-Output Analysis 5. Employment in the Resource Economy

One of the advantages of decomposing the resource economy by industry is that it gives us a framework for estimating the amount of labour that is involved, either directly or indirectly, in servicing demand for Australia's natural resources. While the resource extraction sector itself is a relatively small employer, industries involved in resource-related activity tend to use more labour.

To estimate employment in the resource economy, we calculate the share of each industry's GVA that is generated by final demand for resource extraction and investment in a particular year and then multiply it by the number of workers employed in that industry in that year. For example, in 2011/12, we estimate that 9 per cent of the business services industry's GVA was linked to the resource economy, so we allocate 9 per cent of business services employment in 2011/12 (or 210,000 workers) to resource-related employment.

The assumption underlying these calculations is that the productivity of a worker who works in a particular industry will be the same if they supply their labour to the resource or non-resource economies. In other words, a $1 million increase in business services GVA will require the same number of workers no matter whether this additional activity is the result of an increase in demand from the resource or non-resource parts of the economy. This assumption is difficult to verify with the data we have available, although it seems reasonable for most industries. One possible exception is the construction industry, where the labour productivity of a worker employed in resource-related construction may be higher than that for a worker employed in residential construction, given the relatively capital intensive nature of resource-related construction.

Based on this simple productivity assumption, Table 5 shows our estimates for employment in the resource economy in 2011/12. We estimate that 9¾ per cent of total employment in 2011/12 was engaged in servicing final demand for resource extraction and investment. Of this, resource extraction employment directly accounted for around one-third (3¼ percentage points). Our measure of resource extraction employment is close to the ABS' definition of mining employment (which accounted for 2¼ per cent of total employment in 2011/12); the reason why our measure of resource extraction employment is higher than the ABS' definition is because we include resource-specific manufacturing in the resource extraction sector. The remaining 6¾ per cent of total employment in the resource economy comes from the various resource-related industries, such as business services, construction, and manufacturing, which are significantly more labour intensive than resource extraction.

The share of total employment accounted for by the resource economy is estimated to have doubled since the mid 2000s. Around two-fifths of this growth reflects the expansion in resource investment, which has increased demand for labour in resource-related construction and other industries that provide inputs to these investment projects (such as some types of machinery manufacturing and engineering services; right-hand panel of Figure 12). The share of workers employed in the resource extraction sector has accounted for only one-quarter of the overall increase in the resource economy's share of employment since 2004/05 (left-hand panel of Figure 12), while the remainder is due to an increase in employment in industries that service the operations of mines (such as transport of output from the mine site to ports, business services and power generation; middle panel of Figure 12). Once the peak in resource investment has passed and the resource boom enters its production phase, the share of labour employed in the more labour-intensive resource-related industries is likely to decline and the share employed in the less labour-intensive resource extraction sector is likely to rise further.