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News News Removing AWA's won't hurt minimg, says visiting economist
It is "simply not credible" to claim that removing AWAs would damage the highly profitable mining industry, according to a visiting economist from the Canadian Auto Workers Union.

 Jim Stanford, from the union's Toronto office, says in a new research paper that profits in mining have trebled in the five years to 2006, while revenue has doubled. But wages per worker have increased by just 6% over that same period, to $72,000, he says.

He says the small movement in pay is explained by the amount of new hiring in the industry driving down the average, because they start on lower pay rates. "This data refutes the oft-made claim that mining workers under AWAs have substituted more 'flexible' work arrangements and loss of certain rights and standards for higher pay; in fact, there has been virtually no increase in average pay at all.

" Productivity in the industry has also declined under AWAs, Stanford says. He says labour costs play a relatively minor role in the total economic picture in the industry, with direct and indirect labour costs accounting for a maximum of 12% of total revenue.

Labour costs, he says, account for a "small, stable wedge" of the industry's total revenues. "Even before the current mineral price boom, the industry paid out two dollars in profits for every dollar in wages. "In 2006, however, the industry paid out four dollars in profits for every dollar in wages. "At some point, it should be more important for analysts to consider the high 'profit cost' of mineral production, more than the impact of high 'labor costs'," he says.

Labour's share of total revenue has remained "relatively constant" but the share going to profits has grown "dramatically", mainly due to higher prices, with before-tax profits reaching "an incredible" 40% of revenues, according to Stanford.

"This unprecedented profit margin reflects the sudden increase in value of Australia's non-renewable resources on world markets, not any noticeable improvement in the real economic conditions of their extraction", he says.

Stanford points out that under the AWA regime, there has been "no dramatic change" in work practices or labour costs. He says there has also been no substantial change in average hours worked per worker in the sector. It is "arithmetically impossible" for lower unit labour costs under AWAs to account for the big rise in profits since 2001.

"Australian mining workers could have agreed to work for free, and yet this dramatic act would increase industry profits by well under half of the profit growth that has actually been registered. "Clearly the benefits enjoyed by this industry have come from the revenue side of the account, not the cost side.

"Indeed, there has been no visible evolution on the cost side at all." 50% rise in labour costs would hardly dent profits Stanford says there is no evidence to suggest that the removal of AWAs would increase labour costs. But if for the sake of an exercise, the axing of AWAs increased labour costs by 25%, then bottom-line profits would drop by $2.4 billion, or 5%.

If labour costs increased by 50%, then profits would decrease 11% from their 2006 "all-time highs" to $36.4 billion - still more than 2.5 times higher than the average during 2001 to 2004. Stanford adds that the mining industry has little credibility in arguing that ditching AWAs would undermine new investment in the sector, as the amount it is re-investing is declining.

He says mining companies are earning rates of return of 35% to 70% per year, compared to typical business returns of 10% to 15% on equity. "It would take immense and unfavourable changes for miners to walk away from possibility of earning 35-70% percent profit rates," he says.

 
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