the first decade of the boom the net effect is moderate with manufacturing

The first decade of the boom the net effect is

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the first decade of the boom the net effect is moderate, with manufacturing output estimated to be about 5 per cent lower in 2013 than it would have been in the absence of the boom. Then, as the investment boom fades, and with it the demand for manufacturing inputs, the relative price effects increasingly dominate. By 2016, manufacturing output is about 13 per cent lower, an effect that continues to increase over time.
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26 Figure 18: Effects of the Mining Boom on Manufacturing Output Note: Percentage deviation of baseline estimates from the no-mining-boom counterfactual Sources: ABS; Authors’ calculations and AUS-M model database and simulations However, as Giesecke (2004), Downes and Stoeckel (2006) and Minifie et al (2013) argue, it would be wrong to conclude that the mining boom is the main source of the manufacturing sector’s troubles. As shown in Figures 16 and 19, manufacturing has been declining as a share of the Australian economy for decades. The mining boom accentuates this trend, but its contribution is small compared to the changes that have come before.
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27 Figure 19: Effects of the Mining Boom on Manufacturing Employment Share Sources: ABS; Authors’ calculations and AUS-M model database and simulations 5.6 Employment by Industry The estimated pattern of deviations of employment by industry (Figure 20) is largely driven by the pattern of output by industry (Figure 15). The boom induces large increases in employment in mining and construction and reduces employment in agriculture and manufacturing. Differences in the responses of output and employment by industry (that is, changes in industry productivity) largely reflect changes in real producer wages. These in turn are mainly the result of large deviations in output prices (Figure 17) that are slightly offset by fairly small changes in wages. 4 For example, mining employment rises noticeably before the increase in mining output, because mining output prices are higher (by 37 per cent in 2013), partially offset by a 4 per cent increase in hourly earnings in mining. Similarly manufacturing employment is 9 per cent lower by 2013, compared to an output deviation of 5 per cent. This is because manufacturing output prices are lower, producer real wages are higher and hence there is substitution away from labour for a given level of output. 4 In contrast, Plumb et al (2013, Section 3.2.4) describe the variations in wages by industry as ‘substantial’. That characterisation reflects different data sources and a perspective of reallocation of labour across industries.
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28 Figure 20: Effects of the Mining Boom on Industry Employment Notes: Percentage deviation of baseline estimates from the no-mining-boom counterfactual; industry employment is measured on a heads basis, similar deviations are seen on an hours worked basis Sources: ABS; Authors’ calculations and AUS-M model database and simulations These substitution effects have an impact on measured labour productivity. For example, labour productivity fell in the mining sector when commodity prices rose
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