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Was the mining boom good for you?

By David Richardson - posted Friday, 19 June 2009

Recently, there have been warnings that Australians will have to be prepared for the end of the mining boom and the lower living standards that will impose. The assumption is that the mining boom delivered higher incomes to Australian workers but its demise signals an end to this bonanza and a belt-tightening adjustment on the part of the bulk of Australians. Those with long memories will recall that in the mid-1980s, the Hawke Government similarly used the fall in the terms-of-trade to justify a reduction in real wages.

The above assumption is rarely examined rigorously but The Australia Institute has recently done just that and the results are arresting.

The main benefits of the boom were considered to be transmitted through the terms-of-trade, which essentially measure the purchasing power of exports by dividing an index of export prices with an index of import prices. Commodity prices began to increase towards the end of 2004 and then exploded over the next few years. The commodity price index kept by the Reserve Bank of Australia went from around 100 in 2004 to peak at around 280 in September 2008. It was these increases in commodity prices that chiefly drove Australia’s terms of trade although there would have been some boost from cheap imported goods from China.


According to the Australian Bureau of Statistics (ABS), the terms-of-trade effect produced a 9 per cent real increase in national income between the December quarter 2004 and the December quarter 2008. That was over and above the impacts occurring at the same time on some of the main factors also affecting national income, which included higher employment, higher wages and other incomes and increases in productivity.

Nine per cent is roughly the result when the terms-of-trade increase over the same period (44 per cent) is multiplied by the share of exports in GDP, which averaged 21 per cent. The ABS uses more sophisticated measures but they arrive at approximately the same figure.

If the 9 per cent had been shared equally, it would have represented additional annual income per person of almost $4,000 per annum. If it had been distributed pro rata, everyone would have received a 9 per cent increase to their incomes. However, the mining boom didn’t work like that.

The initial impact of the mining boom devolved on to the profits of the various mining companies and their shareholders would conceivably have received substantial gains. However, many of these beneficiaries were foreign shareholders and much of the paper profits would have been lost in the period since December 2008. After these initial effects, the ripples then spread to the mining company suppliers, contractors and workforce, translating into more work and higher incomes. From there the ripples continued with strong local and regional effects, particularly in Western Australia and Queensland. However, by the time the ripples reached the rest of the economy they were so weak as to be imperceptible.

The Secretary of the Treasury, Ken Henry, suggested that Australians would enjoy the benefits of the boom by way of cheaper import prices. However, people whose incomes are indexed to inflation, including those relying on government benefits such as the unemployed, would have been able to purchase only the same bundle of goods and services during the boom as before it. Flat panel TVs may have become relatively cheaper, but if people could not afford one before the boom they could not afford one afterwards either, unless they gave up something else. For the cheaper import prices to have improved anyone’s living standards, there would have to have been a commensurate real increase in their incomes.

The two main sources of household income are wages and government income support payments. A jump in real wages, compared with what might have occurred in the absence of the boom, would have been necessary for wage earners to have benefited from the mining boom. This can be tested.


The preferred measure of wages is the wage price index because it tracks what is happening to a fixed composition of jobs. Dividing that index by the consumer price index derives a measure of real wages, allowing a comparison of real wages both before and after the mining boom.

Real wages increased only slightly more in the four years after the boom than they did before it. The difference was 0.2 per cent per annum, which is only a smidgin above zero. Indeed, the Reserve Bank’s alternative measure of prices, which eliminates the volatile components, eradicates even that 0.2 per cent. Nevertheless, that 0.2 per cent for four years is well short of the 9 per cent increase in real incomes implied as a result of the mining boom.

While it is hard to identify any improvement in wages using the Australia-wide figures, there is no doubt that wages in some regions and some occupations did increase. For example, average weekly earnings in mining increased by 33 per cent over the four years ending in 2008. On the other hand workers in “accommodation, cafes and restaurants” received a mere12.3 per cent increase, which amounted to an actual real-wage cut of 1 per cent. State-by-state figures are less dramatic but WA wages displayed the greatest growth at 22 per cent compared with the national average of 17.6 per cent.

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About the Author

David Richardson is a Senior Research Fellow at The Australia Institute.

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All articles by David Richardson

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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