Labor productivity, costs, and mine survival during a recession

The ability of a mine to survive cyclical downturns depends, according to e conomic theory, largely on its variable production costs. Since labor accou nts for a sizeable share of the variable costs of mining, a mine that enter s a recession with relatively high labor productivity and that manages duri ng the recession to raise its labor productivity should be more likely than other mines to avoid cutbacks and closure. The US copper industry over the 1975-90 period provides empirical support f or this expectation. But surprisingly, it also suggests that mine survival depends (a) more on labor productivity than variable costs, and (b) more on the ability of a mine to increase its labor productivity once in a recessi on than on a high level of labor productivity at the start of a recession. An important factor affecting the extent to which mines increase labor prod uctivity once in a recession is the life expectancy of their reserves. (C) 2001 Elsevier Science Ltd. All rights reserved.