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Mining jobs pay more than hospitality jobs because they are more productive. Why is that?

On Monday, I wrote that the average annual salary in St. Louis County in 2018 for Leisure and hospitality jobs was just $16,904, but was $98,954 for Metal ore mining jobs. This isn’t that surprising, perhaps. But what causes these differences?

Wrong answers

One explanation might be that mining is a “dirty, hazard filled job” compared to working in a restaurant, say. But, as CNBC reports,

…data from BLS and found that excluding aircraft pilots, the most dangerous jobs pay workers an average of $46,435 a year — that’s $2,287 less than the average current earnings across all professions in the United States.

The danger of a job doesn’t seem to be related to pay.

Another explanation could be that “Mining jobs produce a useful and valuable commodity that allows for a profit”. But, if we swap out the words “Mining” for “Leisure” and “commodity” for “service”, we get “Leisure jobs produce a useful and valuable service that allows for a profit”, a statement that makes just as much sense. If you find a service useful and valuable, you’ll pay for it, just as you would if you found iron ore useful or valuable.

A third explanation might be that mining is “labor intensive work”. But, as I’ve written before, “Nobody works harder than the Bangladeshis.”

According to a 2012 report in The Lancet, Bangladesh has the most physically active population in the world. As one write up said, “Bangladeshis are exceptionally active due to the country’s primary industries which require physical labour. Most Bangladeshis earn a living through agriculture, primarily cultivating rice and jute but also maize and vegetables.”

And yet, for all this effort, there is little economic reward. Of 199 countries the World Bank has data on for GDP in 2012, Bangladesh ranked 175th. Bangladeshis, on average, work very hard, but produce very little output. As a result, despite their physical efforts they remain poor.

For the most part, the reason poor people in poor countries like Bangladesh are poor is not because they are lazy. Indeed, they often expend more physical effort than workers in the developed world. They are poor because, for all that labor, they aren’t very productive. By contrast, American farmers, with their capital inputs to leverage their labor, work less physically but produce far more. According to World Bank data, in 2012 Agriculture value added per worker was $61,634 in the United States. For all that back breaking labor, in Bangladesh it was just $662.

The right answer

But this third explanation does get us some way towards the right answer. Bangladeshis don’t, in general, earn much income because, for all their hard labor, they don’t generate much output. That – labor productivity – is the key to understanding why mining jobs pay so much more than tourism jobs.

Figure 1 illustrates this. It divides the inflation adjusted GDP of Minnesota’s Mining (except oil and gas) (from the Bureau of Economic Analysis) by the number of workers employed in that sector (from the Bureau of Labor Statistics). This gives GDP per job in that sector, a measure of labor productivity. It shows the same numbers for Minnesota’s Arts, entertainment, recreation, accommodation, and food services sector* and for all jobs in the state.

Figure 1: GDP per job, 2001-2017 (2012$)

Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Center of the American Experiment

Simply put, mining workers are paid more than leisure workers because they generate more output. And this is not because mining workers work vastly harder physically, look at Bangladesh. It is because they have more capital behind them. Using a machine, one mining worker can produce a lot of output. A dock hand, by contrast, can only look after so many boats. Furthermore, while a mining worker can become more productive with a new and better machine, the number of boats or customers a dock hand can service is unlikely to increase much over time.

In short, mining workers earn more because their jobs are much more capital intensive than jobs in the leisure industry.

*This category is broader than that of Leisure and hospitality which I used in my post on Monday. Sadly, it is about as close I can get given how the BEA data breaks down.

John Phelan is an economist at the Center of the American Experiment. 




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