Economists say rosy mining forecasts should count costs and lost jobs, too

The prospect of new life for the mining industry on the Iron Range — and the jobs it will bring — has been cited as the main benefit of allowing non-ferrous mining by PolyMet and others.

Part of an occasional series on copper/nickel mining in northeastern Minnesota.

Of all the exchanges in last week’s hearing on the financial guarantees to be required of PolyMet Mining Corp. if it gains permission to dig for precious metals on the Iron Range, this one stood out for its concise and counterintuitive thrust:

Rep. Paul Anderson, R-Starbuck: Ma’am, did I hear you correctly when you said that mining is BAD for the economy of northeastern Minnesota?

Rebecca Rom of Ely-based Northeastern Minnesotans for Wilderness: Yes.

I think we all understand that the cost/benefit calculation for this new kind of mining is a complex one — far more so than the typical shorthand of “jobs vs. environment” would have it.

But I guess I’ve always assumed — and maybe you have, too —that these projects were certain to deliver substantial net gains in employment and regional economic growth. Given his tone of mild incredulity as he put his question to Becky Rom, Rep. Anderson has probably been assuming the same.

Now a new analysis commissioned by Rom’s group challenges those assumptions and the principal economic research on which projections of Minnesota’s mining future have been based for the last several years.

It insists that jobs and growth forecasting should also account for the costs that mining would impose, as well as the offsetting loss of existing businesses that mining —especially the projects to follow PolyMet, in the Boundary Waters watershed — could displace, principally in tourism.

This analysis, released last month, was prepared for NMW by Evan Hjerpe and Spencer Phillips, two Ph.D. economists who specialize in analyzing environmental and natural resource questions for clients like The Wilderness Society. They were asked to critique “The Economic Impact of Ferrous and Non-Ferrous Mining on the State of Minnesota and the Arrowhead Region, including Douglas County, Wisconsin.”

That study, known colloquially as “the UMD study” or “the Skurla report,” was produced in 2009 (and updated in 2012) by a team at the University of Minnesota-Duluth’s Labovitz School of Business, under the direction of James Skurla, who directs the school’s Bureau of Business and Economic Research.. 

Big claims for mining’s future

Copper/Nickel Mining in the North WoodsIt’s the basis for most of the big claims you hear about the future of both iron and sulfide mining in the north woods, including these found Wednesday on the Mining Minnesota site: “Thousands of family-sustaining Minnesota jobs… Millions of hours of construction trades and labor jobs … $2 billion for Minnesota School Trust Fund … Tens of millions of dollars in local and state revenues annually.”

NMW’s consultants don’t so much dispute those figures as challenge the process that produced them, which they characterize scathingly as inexpert application of an off-the-shelf economic model, resulting in a study that “falls squarely at the ‘low-quality’ end of the spectrum” for such work.

While much of their critique is eye-glazingly mathematical and methodological — way over my head, I freely admit — other objections seem both commonsensical and serious. Examples:

  • Because the economic impact analysis in the UMD report is “narrowly focused on short-term changes in regional economic indicators,” and doesn’t factor in the expense of additional public services, infrastructure and environmental mitigation, it “does not shed any light on any associated costs to society that might result from the proposed development.”
  • The analysis “vastly under-represent(s)” economic activity associated with tourism, by counting only data from two sectors: “amusements, gambling, and recreation” and “accommodation and food services,” and probably overestimates mining-related tax revenues.
  • By counting jobs in ways that don’t register the seasonal and temporary nature of some mining jobs, as well as the transience of some mining workers who would collect wages in the Arrowhead but spend them elsewhere, the UMD report probably overestimates mining-driven job growth.
  • While the UMD report states that its estimates of future mining activity, employment, sales, taxation and other economic factors were obtained from mining companies, industry associations and state agencies, no details are provided as to the methods — therefore credibility — of the data collection.

All in all, the economists conclude that “communities in Northeastern Minnesota should be very cautious in pursuing a particular economic development strategy.”

“If some is good, then more is better,” is not always applicable… Economic diversification increases community resilience in times of recession and when exposed to the “bust” cycle of an important industry sector.

 If mining is indeed already 30% of gross regional product in northeastern Minnesota, a virtual doubling of direct mining jobs will render the region utterly dependent on a known boom and bust industry, decreasing its overall economic diversification. This is not a wise economic development strategy.

Questions of credentials

I’m sure some will find it convenient to dismiss the Hjerpe/Phillips critique as biased work-to-order from “green economists” working for an environmental group, as they were labeled in the Timberjay newspaper. But the Timberjay, even-handed as always, also took care to point out that “UMD, as an institution, has long had close ties with the mining industry.”

To which I would add: The UMD report was prepared for clients, too, some in government (Department of Employment and  Economic Development, Iron Range Resources and Rehabilitation Board) but more in industry (Mining Minnesota, the association formed specifically to promote precious-metals mining in the north woods; the Iron Mining Association of Minnesota; and Minnesota Power, which provides electricity to mining operations on the Range).

The UMD report was prepared for bodies interested in mining.

You don’t even have to look that up: They’re listed on the cover.

For an illustration of the Hjerpe/Phillips study’s key point, here’s the rest of Rom’s answer to Rep. Anderson, lightly compressed:

We’ve done a lot of review of the economy of Ely, and compared it to the economies of the mining communities in northeastern Minnesota.

Eveleth is the size of Ely, and has Thunderbird mine within the boundaries of the city. The last year the state of Minnesota reported gross sales revenues, Eveleth was $41 million a year. Ely is $106 million a year.

Eveleth relies on mining. Ely hasn’t had a mine since 1967.

Ely’s economy, which is based fundamentally on the wilderness and a healthy national forest, would be displaced and replaced with what Eveleth has. Yes, it would be bad for our economy.

* * *

The Skurla report can be read here [PDF] and the Hjerpe/Phillips report here [PDF]. The financial assurance hearing was recorded by the Legislature’s video services crew and can be viewed here, with the Anderson/Rom exchange occurring at around the 3:14 mark.  

Comments (1)

  1. Submitted by Amy Hendrickson on 02/21/2014 - 01:52 pm.

    It should maybe be noted …

    Regarding the statistics in the last paragraph (Eveleth gross revenue $41 million; Ely gross revenue $106 million), it should maybe be noted:

    Most Eveleth residents drive 4-5 miles to nearby Virginia to shop at the Target, Kmart, SuperOne, fast-food places, and other stores which are located there.

    Ely is much more distant from its neighbors, and, none of those neighboring towns offer any of the larger retail stores mentioned. Ely residents probably do spend a higher percent of their money in their hometown (due to its remote location) than do Eveleth residents.

    Additionally, the residents of several nearby (smaller) towns probably drive to Ely for shopping, much like the people of Eveleth often drive to Virginia for shopping.

    Some of these factors are probably too difficult to consider when looking quickly at a statistic, but they are there.

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