Fewer mining jobs means big-time economic problems for Minnesota

This op-ed appeared August 19, 2017 in the Duluth News Tribune.

In 1955, the Silver Bay refining plant was completed on the North Shore of Lake Superior. Built to refine the ore coming from the Iron Range, the plant, by the late 1960s, was producing 10.7 million tons of pellets annually for shipment to steel mills in the East. By then, environmental costs were becoming apparent. The Reserve Mining Company, which ran the plant, was dumping 60,000 tons of tailings a day into Lake Superior. A large delta of tailings accumulated in the lake, and a 1970 report noted a murky “green water” stretching 18 miles.

Nobody wants to see a repeat of this catastrophe. If new, large-scale mining is to come to northern Minnesota, it must do so without damaging the environment.

But mining is needed. Our state’s economic future might depend on it.

As we at the Center of the American Experiment explain in a forthcoming report, employment in mining in our state has had a tough start in the 21st century. According to the Bureau of Labor Statistics, the share of employment accounted for by mining and logging in Minnesota fell from 0.36 percent in January 2000 to 0.27 percent in June 2017. In absolute numbers, the story is as bad. In June 2017, there were 1,400 fewer mining and logging jobs than at the dawn of the millennium.

Where have new jobs in Minnesota been found? In health care and social assistance, primarily. Of the 766,800 jobs created in our state since January 2000, 264,400 of them — 34.5 percent — have been in health care and social assistance.

Health care and social-assistance work is vital and should not be denigrated. But the growing share of Minnesota’s workforce employed in it represents an economic problem for our state. According to the Bureau of Economic Analysis, each job in mining and logging, where employment has fallen by 23.4 percent since 2000, generates an average of $447,603 annually in “gross value added.” By contrast, each job in health care and social assistance, where employment has increased by 60.8 percent in the last 16 years, generates an average of just $88,761 annually in gross value added.

The story is the same across Minnesota’s economy. Employment growth has been strongest in health and education where the gross value added per job is comparatively low. Conversely, it has been slowest, or nonexistent, in the sectors such as information and durable- and nondurable-goods manufacturing, where gross value added per job is highest.

As Minnesota’s population ages, more problems will become apparent. According to the Minnesota Department of Health, by 2030, about one in every four Minnesotans will be aged 65 or over, up from 12.1 percent in 2000. Employment in health care and social assistance can only be expected to grow. But who will generate the income to pay for them?

Productivity gains in a labor-intensive sector like health care and social assistance are, by nature, unlikely to be very big. Yet salaries there will be pulled up by those available in other sectors, what is known as “Baumol’s cost disease.” Needed are high-productivity jobs such as those that could be had in mining.

If we are going to pay for the health care and social assistance the elderly in our state will need, we need more mining jobs in northern Minnesota.

John Phelan is an economist at the Center of the American Experiment (americanexperiment.org) in Golden Valley, Minn.