Economic Analysis: Demand and Supply of Skilled Labor in Australia

This essay provides an economic analysis of the demand and supply of skilled labor in the Australian mining sector. It highlights the challenges faced by the industry due to a shortage of skilled workers, leading to increased wages and potential stalling of projects. The essay explores the impact of technological change on the demand for skilled versus unskilled labor, referencing the Solow growth model. It recommends strategic investments in training programs and collaboration between mining companies and the government to address the skill gap. The conclusion emphasizes the need for reassessing recruitment strategies to stabilize wages and ensure a sufficient supply of skilled workers in the mining industry. Desklib offers similar resources and solved assignments for students.

Running head: ECONOMICS ASSIGNMENT
Demand and Supply of Skilled Labor in the Mining Sector of Australia
Name of the Student:
Name of the University:
Author note:

1ECONOMICS ASSIGNMENT
Introduction: Essence of the story
Australia is a resource rich country and mining was one of the most booming industries
until the last few years. This industry requires specially skilled labor for specialist works. Hence,
the demand for skilled labor is high in this industry. According to a report by Turner (2012),
Australia’s mining sector has been facing a hard challenge as a crisis of skilled labor has
emerged. The demand and supply of the skilled labor in the mining sector has become a big issue
for the resource industry as it is struggling to recruit labor with specialist skills required in the
mining industry and hence, it faces a danger of stalling in the near future.
The shortage of supply in the labor market for the resource mining industry is a matter of
concern for the mining industry, overall economy as well as for the Australian government. Due
to the shortage in supply, the wages of the existing workers, even for the truck drivers, have
soared very high. This is a problem for the economy as the industry could soon face a stalling if
the human resource gap could not be reduced. There is supply of unskilled labor, but the industry
demands for skilled labor, such as, mining engineers, resource metallurgists and geologists. As
stated by Nick EastWood, Senior Mining Consultant at global recruitment agency Hunter
Personnel, there are jobs still available at the mining industry however, they cannot find the right
candidate (Richardson 2018). This also indicates towards the talent gap and frictional
unemployment in the economy.
Economic analysis
Skilled labor falls under the category of human resources and the demand and supply of
labor follows the standard laws of demand and supply. Labor is one of the main factors of
production and wage is its return. The law of demand says that as price of a good or service

2ECONOMICS ASSIGNMENT
increases (decreases), the demand for it falls (rises), ceteris paribus, and hence, demand is a
downward sloping curve. On the other hand, the law of supply says that if the price of a good or
service increases (falls), the supply of it increases (decreases) too, ceteris paribus. Supply has an
upward sloping curve (Becker 2017). The demand and supply for labor also follow the same
principle like other factors of production.
When there is excess demand for labor in the market, the wage rises to bring equilibrium
in the market and the opposite happens when there is an excess supply. The supply of unskilled
and skilled labor depends on many factors, and education and technological change are two
major factors among those. Education and training help in building up the skills among the labor
and technological changes in the economy. When the required level of education and
qualification is more, the less is the supply (Ehrenberg and Smith 2016).
On the other hand, rise in the aggregate demand for products and services leads to rise in
the demand for labor, shifting the demand curve to the right. In the Australian mining sector, the
demand for skilled labor increased when there was economic growth and aggregate demand for
the products as well as resources increased in the nation. According to the Solow growth model
with technological progress, economic growth occurs due to increase in savings and capital
accumulation, fall in the population growth rate resulting in higher income per person and rate of
depreciation of the machineries. All these effects are temporary because once the economy
reaches the steady state, it stops growing. Hence, long term economic growth can be achieved
only through continuous technological change (Solow 2016). There are some impacts of
technological change; especially the wage discrimination and those are visible in the mining
industry of Australia.

3ECONOMICS ASSIGNMENT
Wage
Supply of low skilled
labor
D1
D2
Q1
E1
W1
W2
Q2
E2
S
Effect of technological
change
Due to the economic growth, the human resources also receive more education and
training, and wages increase. However, technological change requires skilled labor. After the
technological change, demand for low skilled labor falls while that for the high skilled labor rises
(Ruttan and Thirtle 2014). As shown in the figure below, the demand curve for the high skilled
labor shifts to the right after technological change, resulting in rise in wage, with supply curve
remaining the same, while the opposite happens for the low skilled labor.
Figure 1: Effect of technological change on demand and supply of low skilled labor
(Source: Author)

4ECONOMICS ASSIGNMENT
Wage
Supply of high skilled labor
D2
D1
Q2
E2
W2
W1
Q1
E1
S
Effect of technological
change
Figure 2: Effect of technological change on demand and supply of high skilled labor
(Source: Author)
Recommendations to the key players
It is found that there are not enough skilled mining workers in Australia, and there is
rigidity in the company policies to hire a fresher rather than asking for 10-15 years of experience
(Weller 2017). Hence, the companies and the governments must make long term strategic
investment for training a new generation to shorten the skill gap. The mining companies should
also go for collaboration with the government, as in Brazil. These collaborations can help in
building trained workers.
Moreover, there should also be policies for hiring the freshers so that their education and
skills do not get wasted and at the same time they get the necessary on-the-job training. To
reduce the acute problem of excess demand for skilled workers in mining, the government
should step in to make policies for fresher’s employment.

5ECONOMICS ASSIGNMENT
Conclusion
The mining boom of Australia is getting over due to a fall in the demand for resources
from China along with falling prices of iron ore and coal. Hence, at present Australia’s mining
industry is facing a skill gap, that is, they demand for highly skilled and qualified human
resources rather than plenty of low skilled workers. Therefore, there exists a huge wage gap in
the industry.
To mitigate this problem, the country should focus on investing on education and
introducing training programs, along with reassessing the recruitment strategies, so that there is
increase in skilled workers in the mining industry and the wages are stabilized.

6ECONOMICS ASSIGNMENT
References
Becker, G.S., 2017. Economic theory. Routledge.
Ehrenberg, R.G. and Smith, R.S., 2016. Modern labor economics: Theory and public policy.
Routledge.
Richardson, B., 2018. Skilled labor: Hot demand, short supply. [online] Press Herald. Available
at: https://www.pressherald.com/2018/04/19/skilled-labor-hot-demand-short-supply/ [Accessed
22 Apr. 2018].
Ruttan, V. and Thirtle, C., 2014. The role of demand and supply in the generation and diffusion
of technical change(Vol. 21). Routledge.
Solow, R.M., 2016. Resources and economic growth. The American Economist, 61(1), pp.52-60.
Turner, J., 2012. Supply and demand: Australia's mining labour crisis. [online] Mining
Technology. Available at: https://www.mining-technology.com/features/featuremining-australia-
recruitment-employment-mineral/ [Accessed 22 Apr. 2018].
Weller, S.A., 2017. Accounting for Skill Shortages? Migration and the Australian Labour
Market. Population, Space and Place, 23(2).