In a research paper published in 2014 in the journal Mineral Economics, Olle Östensson discussed the significance of employment that is generated by large-scale mining in spurring local economic growth. He evaluated the effects on employment of the Escondida Mine in Chile, Tenke Fungurume Mine in the Democratic Republic of Congo, and various mining companies in Northwest Provice, Zambia. His research showed that large-scale mining generated indirect and induced employment that when combined, surpassed direct employment. The increased employment results in increased spending, which in the long run results in an increase in the overall income of the communities. This phenomenon, called the multiplier effect, boosts local economic growth.
Very few people are aware of the actual effects of mining on employment and economic growth. “It is a piece of conventional wisdom that mining projects have relatively minor effects on employment,” according to Olle Östensson. This belief stems from the assumption that though mining is capital intensive, it needs few employees in relation to the invested capital. Another common belief is that mining has few linkages with other economic activities. Thus mining is often regarded as a rather closed system, which is not the case, as Östensson’s research showed.
Östensson defined three types of employment generated by a large-scale mining company. Direct employees are company employees or contractors working in the company work place. The operating mine would need to buy local goods and services provided by other businesses. Indirect employment refers to the employees working in these other businesses who will benefit from the increase in demand. Because direct and indirect employees will spend their wages to buy clothes, food, etc., businesses that provide these goods and services will experience an increased demand as well. Those employees working in these businesses that benefit from the increased demand but don’t directly supply for the mining company are classified as induced employees.
Through his research, Östensson found that “induced employment can be a highly significant effect of large mining projects.” He argued that employment generation and increased employee spending in the communities are sufficient to spur growth in local economies. “The transformation of a subsistence economy into one that is at least partly monetary also creates the conditions for economic diversification and empowerment of the poor.”
However, governments pay little attention to the contribution of indirect and induced employment in local economic growth. One reason of neglect, Östensson argued, is the difficulties of identifying and quantifying their effects. Though oftentimes bypassed, a baseline study of the socio-economic conditions in the communities prior to mining is a crucial basis to evaluate the contribution of the mining project to employment and thus the economy. “…it can be hoped that a growing trend on the part of governments to require that social impact assessments be carried out before permits are granted will encourage mining companies to carry out proper baseline studies on local economic conditions before starting development,” Östensson concluded.
Östensson O. The employment effect of mine employees’ local expenditure. Mineral Economics. 2014;27(2-3):135-142. doi:10.1007/s13563-014-0056-6.