TheEconomicImpactsofRenewedCopperMining intheWesternUpperPeninsulaofMichigan

Areportpreparedfor

FriendsoftheLandofKeweenaw FOLK
by

PowerConsulting,Inc.
ThomasMichaelPower,Ph.D DonovanS.Power,MS www.powereconconsulting.com May2013

 AbouttheAuthors:

ThomasMichaelPoweristhePrincipalinPowerConsulting,Inc.andaResearchProfessorand ProfessorEmeritusintheEconomicsDepartmentatTheUniversityofMontanawherehehas beenaresearcher,teacher,andadministratorforover40years.Hereceivedhisundergraduate degreeinPhysicsfromLehighUniversityandhisMAandPhDinEconomicsfromPrinceton University. DonovanS.PowerreceivedhisundergraduatedegreeinGeosciencesattheUniversityof MontanaandhisM.S.inGeologyfromtheUniversityofWashington.Hehasbeentheprincipal scientistatPowerConsulting,Inc.forthepastfiveyears.

TableofContents
ExecutiveSummary................................................................................................................iv 1.Introduction............................................................................................................................ iv 2.AvoidingaRearViewMirrorApproachtotheLocalEconomy:TheNewEconomyThatHas EmergedintheWesternUpperPeninsula.................................................................................iv 3.ThePromiseandRealityofMining........................................................................................ vi 4.SustainableDevelopmentoftheWesternUpperPeninsulaEconomy...............................viii I.IntroductionandStudyObjective.........................................................................................1 II.ShiftingOurGazefromtheEconomicRearViewMirror:TheDangersofaFocusonLand BasedExports..........................................................................................................................2 1.HowWeLookatandThinkabouttheLocalEconomyandLocalEconomicWellBeing........2 2.CompletingOurAnalyticalViewoftheLocalEconomy:TheTotalEconomy........................3 A.IncorporatingLaborSupplyintoOurViewoftheLocalEconomy.....................................4 B.LookingatAllSourcesofEconomicValueIncludingNonMarketEconomicValues.........6 C.Capturing,Holding,andCirculatingIncomeintheLocalEconomy ....................................7 D.ConclusionsontheLimitsoftheExportBaseViewoftheLocalEconomy ........................8 3.Summary.................................................................................................................................9 III.TheLocalEconomyThatHasActuallyDevelopedintheWesternUPovertheLastSeveral Decades.................................................................................................................................10 1.DataSourcesUsedinthisReport......................................................................................... 10 2.TrendsintheDevelopmentoftheEconomyoftheWesternUpperPeninsula...................10 3.IncludingOtherEconomicActivitiesThatDrawIncomeintotheRegionalEconomy..........16 4.TheGrowthinManufacturingEmploymentintheWesternUP..........................................18 5.PuttingJobsandAssociatedPayrollinthePerspectiveoftheTotalEconomy.............19 6.IncludingRetirement,Investment,andSupportPaymentIncome......................................24 7.TheLocalEconomyoftheWesternUpperPeninsula:ASummary.....................................26 IV.ThePromisesandRealityofCopperMining.....................................................................28 1.ThePromisesofCopperMining ............................................................................................ 28 2.TheAnomalyofMining:HighPaybutLittleProsperity.......................................................30 3.ExplanationsforthePoorEconomicPerformanceofMiningCommunities........................35 A.RidingtheNaturalResourceEconomicRollerCoaster:CopperMiningintheWesternUP ...............................................................................................................................................36
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B.TheImpactofTechnologicalChangeonCopperMiningEmployment............................41 C.TheMobilityofMinersandIncomeLeakageoutoftheMiningArea ..............................43 D.DepletionofMineralDeposits ......................................................................................... 46 E.TheEconomicImplicationsofEnvironmentalDegradation.............................................47 4.MetalMiningsPotentialEconomicConnectionstoWesternUPCommunities:Usingthe ProposedCopperwoodMineasanExample............................................................................48 A.TheProposedCopperwoodMineandMill .......................................................................49 B.TheDistributionsoftheEconomicValueCreatedataCopperMine..............................50 C.TaxRevenuesandIncreasedDemandforPublicServices:FiscalBalance......................52 D.TheDistributionoftheEconomicImpactsofaCopperMiningProject..........................53 E.ModelingtheImpactsoftheCopperwoodProjectontheWesternUP..........................54 5.Summary............................................................................................................................... 58 V.ThinkingabouttheEconomicFutureoftheWesternUPRegion........................................59 1.ThinkingTooLocally:LookingatRegionallyIntegratedEconomies.....................................59 2.TheDangersoftheEconomicRearViewMirror..................................................................60 3.RelyingonOutsideSaviorsVersusLocalEconomicGardening.....................................62 4.TheImportanceofQualityofLife,Knowledge,andanEntrepreneurialContext................63 5.EmergingDevelopmentsinAmericanManufacturing.........................................................66 6.TheWesternUpperPeninsulaandthePotentialforEconomicGardening ......................67 7.LookingBeyondtheHoughtonHancockArea.....................................................................71 8.ThePlaceofMetalOreMiningandProcessingintheWesternUP.....................................73 9.Summary............................................................................................................................... 75 Bibliography..........................................................................................................................79 AppendixA:QuestionsandAnswersontheRoleofMetalMiningintheDevelopmentofthe WesternUpperPeninsulaEconomy .......................................................................................82 AppendixB:StudyApproach................................................................................................93 1.DescriptionoftheWesternUpperPeninsulaEconomyandAnalysisofTrends..................93 2.AnalysisoftheLocalEconomicImpactsofMining...............................................................94 AppendixC:MineDependentCounties:19801990..............................................................95 AppendixD:CoalMiningDependentCounties:1998............................................................96

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Executive Summary
1. Introduction
In recent years mining companies have returned to the Western Upper Peninsula of Michigan (Western UP) to explore for metal ore deposits and propose a variety of metal ore mining and processing projects. The Friends of the Land of Keweenaw (FOLK1), an active all-volunteer organization located in the Western UP, is concerned about the lack of involvement of the resident population in the decision-making about these metal mining proposals. It wants a public assessment of renewed metal mining that engages citizens to discuss and decide if the resumption of metal mining is in the regions best interest. To that end, FOLK has launched a grassroots Mining Education and Citizen Empowerment Campaign. The objective of this public campaign is to provide citizens, community leaders, and private and public institutions with the capacity to make informed and responsible decisions regarding new mining projects in the Western Upper Peninsula. This requires that information be made available on the likely impacts of a return to a metal mining economy on the regions natural and social environments and economy. FOLK commissioned this study of the Western Upper Peninsula economy and the likely impact of metal mining on that economy as part of FOLKs education and empowerment campaign. We define the Western Upper Peninsula as the five-county area including Keweenaw, Houghton, Baraga, Ontonagon, and Gogebic Counties.

2. Avoiding a Rear-View Mirror Approach to the Local Economy: The New Economy That Has Emerged in the Western Upper Peninsula
When discussing proposals for economic development in small urban centers and the surrounding rural areas, the focus often falls on the land-based activities of the past that allowed European-Americans to inhabit those areas. As a result, the focus tends to be on the export base. In the Western UP that typically involves focusing on mining and processing metal ores, forest products and other land-based manufacturing, and agriculture.
1

For more information about FOLK, visit one of its websites: www.folkup.org or www.folkminingeducation.info.

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Although these land-based activities may remain important, focusing on the economic activities that dominated the regional economy decades or a century or more in the past is a dysfunctional and dangerous way to approach economic development. Market economies are constantly evolving over time and the sustainable economic activities of the present and the future may be quite different from those of the past. More of the same or trying to relive the past is not a viable economic development strategy. This report begins with a discussion of the broader view we have to take of the local economy if we are going to understand it enough to design public policies to support local economic vitality and improve local economic well-being. We need to supplement the focus on traditional land-based export-oriented activities by incorporating several other vital dimensions of the local economy: i. We need to include in our view of the local economic base all economic activities that draw income into the community from outside, regardless of whether traditional exports or any physical exports are involved. In the Western UP that includes: a. The visitor economy including tourism and recreation; b. Urban trade center activities serving the surrounding area including professional and technical services such as medical facilities; c. Universities, colleges, and other residential schools; d. State and federal government institutions and facilities. Almost all of the job growth in the Western UP over the last four decades took place in the service, retail trade, and state and local government sectors. In 2010 these were also the largest sources of employment in the region. Land-based activities such as mining and agriculture, in contrast, laid off workers by the thousands. ii. We need to recognize that locally-oriented businesses are not secondary in economic importance. It is they that capture and circulate the income that flows into the community, creating the multiplier impacts. A rich and diverse commercial infrastructure focused on serving local needs is important to local economic vitality as well as quality of life just as are export-oriented firms. iii. Much income flowing into the Western UP is not tied to current employment in the labor force. This non-employment income includes investment income (dividends, rent, and interest) as well as retirement-related pension programs including Social Security, Medicare, other government pensions, as well as private pension programs. Government programs for household income support also contribute to income flows into the region, especially v

during economic downturns. These non-employment income flows were responsible for a billion dollars flowing into the Western UP in 2010. Those income flows were almost as large as all labor earnings associated with jobs in the region. Those non-employment income flows are a very important source of economic well-being in the region. iv. Over half of this non-employment income is associated with retirees. This makes the residential decisions of retired persons potentially important to local economic vitality. v. Manufacturing jobs in Houghton and Baraga counties began growing after 1985, adding 1,100 jobs by 2006. The other three counties in our study area added another 160 manufacturing jobs during that period. Much of the growth was associated with the development of a dynamic technology sector in the area around Houghton-Hancock. Beginning in 2001, the Keweenaw Economic Development Alliance (KEDA), in partnership with Michigan Technological University and the Cities of Houghton and Hancock, have been focused on establishing a business support system for technology firms. Since start up, KEDA reports that a technology sector of 35 to 40 companies has been created. It is important to note that most of these sources of new jobs and local economic vitality are tied to preferences that people have for where they would prefer to live, start a business, retire, go to school, or visit. That is, the attractiveness of an area to current and potential residents, visitors, and businesses is an important source of economic vitality and local economic well-being. That is why one local commentator on the Houghton-Keweenaw County area economy correctly labeled it a quality of life economy.2

3. The Promise and Reality of Mining

The economic attraction of metal mining is that mining and ore processing pay wages that are substantially higher than the average. Between 1990 and 2000 the average annual pay associated with metal mining in Michigan was 81percent larger than the average annual pay across all Michigan wage and salary jobs. After 2000, metal mining as an industry had shrunk so much that statistics on it were no longer presented at the state and county level. The National Mining Association reported average annual pay in American metal mining in 2010 as being 74 percent above all private sector jobs:

Reinventing the Keweenaw and the Western U.P.: New Strategies, Changing Perceptions, and the Emergence of a Quality-of-Life Economy, David Harmon, 2012, http://www.folkminingeducation.info/reinventing-the-keweenaw-and-the-western-u-p/

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$81,300 compared to $46,751.3 Metal mining provides some of the highest paid jobs available to blue-collar workers. Despite the high wages paid in metal mining, the communities that rely on mining have not, in general, shown signs of widespread prosperity and economic vitality. Employment, population, and total community income have grown much slower in mining communities than in communities not dependent on mining. Often unemployment and average income per person have also been lower. This feature of mining communities across the United States and around the world has led economists to study the apparent curse of natural resource abundance. i The Western UP has had a long experience with mining and it is difficult to detect signs of unusual prosperity that has flowed from that experience. Instead, there has been a series of booms and busts that have left communities in economic difficulty. We identify five reasons for this anomaly of mining: The failure of the high pay in mining to bring prosperity to mining communities. The instability of mine production, employment, and payroll tied to fluctuations in the demand for and price of minerals on national and international markets. The impact of ongoing labor-displacing technological change that constantly reduces the workforce required for any given level of mine production. Mine employees are very mobile, commuting long distance to work while maintaining their residences outside of the area immediately impacted by the mining and milling. This leads much of the mining payroll to leak out of the region around the mine. Mines, ultimately, always deplete their economically viable ore deposits and shut down. The average life of a metal mine has declined significantly in recent decades. For instance, the copper mining activities in Butte, Montana, have lasted 125 years, albeit, employing a drastically reduced workforce. The White Pine mine operated for almost 45 years. But the proposed Copperwood project in Gogebic County is estimated to last 13 years. Mining is land intensive and as a result can have nearly permanent impacts on the natural environment. Environmental degradation can significantly reduce the attractiveness of a mining area as a place to live, work, raise a family or start a business.

ii

iii

iv

vi

Economic Contribution of U.S. Mining in 2010, September 2012, p. 16. www.nma.org/pdf/economic_contributions.pdf .

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Metal mining is often described as a pure benefit: Valuable treasure is removed from the earth by paying workers much higher wages than could be earned anywhere else. But, as outlined above, there are clearly costs that are incurred alongside the benefits. Rational decision making requires the costs and benefits to be carefully weighed and there is no reason to believe that the benefits of mining always exceed the costs. Mining companies know this. They do lots of exploration to find mineral deposits and then do lots of drilling and economic-engineering analysis to determine if the value of the mineral once extracted and processed justifies the costs that would have to be incurred. Mining companies regularly decide not to actively mine a known ore deposit because the costs are expected to exceed the value produced. Mining companies regularly leave mineral deposits in place because that is the economically rational thing to do. The public should be as rational and hardnosed as mining companies: The public should carefully study both the costs and benefits of new metal mining, but from a public interest point of view rather than from a commercial business point of view. If the costs appear to exceed the benefits, the public should reject the proposed mine just as a mining company would if the private costs exceeded the private value produced.

4. Sustainable Development of the Western Upper Peninsula Economy

The most common type of economic development strategy urged on communities is to go searching for large companies and try to lure them into locating in your community, thus putting residents to work at, hopefully, relatively high wages. In that approach, community economic development depends on an external agent bringing economic development to an area. The local community itself is conceived of as a passive recipient of a gift except for the reciprocal gifts the community may have to give to the new company to encourage it to locate in the community. This assumed community passivity can result in very little actual local economic development taking place because the new industrial operation puts down few roots in the community and a passive dependency is encouraged, something that is the opposite of an entrepreneurial culture. At its extreme, this results in a company town mentality in which very little community-based economic development takes place. Instead the community waits for one outside savior after another to deliver a fully formed industrial facility to the local area. There is an alternative to these strategies of passive dependence, an alternative that does not wait for large industrial facilities to magically appear in a timely fashion to maintain local economic vitality and avoid stagnation. Instead the local economy is seen as having its own entrepreneurial energy that with encouragement and modest support can blossom into a variety of small enterprises that have the capacity to grow and interact with other local businesses and the local workforce to provide employment and income opportunities. In this vision of diversified organic economic development, the

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local area is not a passive participant. The site-specific characteristics of the community are crucial to encouraging and maintaining local economic vitality: environmental amenities, both social and natural, the quality of the local workforce, schools, public and private infrastructure, cultural richness and openness, independent entrepreneurial spirit, etc. Protecting and enhancing the qualities that make a location an attractive place to live, raise a family, and do business becomes central not only to local quality of life but also to maintaining and enhancing local economic vitality. What is good for local quality of life also, often, is good for a vital local economy. Rather than there being some tragic tradeoff we have to make, purposely accepting damage to our quality of life in order to encourage someone to create jobs for us, we can simultaneously improve both quality of life and economic vitality. This is not a prescription for a community to passively sit back and wait for something to happen. Rather it involves an active nurturing of existing businesses and support for new start-ups. The Keweenaw Economic Development Alliances apt phrase for this is an Economic Gardening strategy.4 A productive garden requires active management that understands, respects, and supports the natural system in which it is embedded. The same is true of a vital local economy. Empirical analysis of the Houghton-Keweenaw region indicates that local economic gardening has a significant potential. Quantitative comparison of the HoughtonKeweenaw Area with growing non-metropolitan counties nationwide indicates that at least three of the requisite characteristics are already present: the natural outdoor amenities, the concentrations of professional and technical workers, and the presence of significant urban areas (Houghton-Hancock and Ironwood). Keweenaw, Houghton, and Ontonagon Counties make up one set of contiguous counties that were in the top quarter of all U.S. non-metropolitan counties in terms of the quality of outdoor amenities.5 Gogebic and Baraga Counties were in the top half of U.S. nonmetro counties according to that index. Iron and Vilas Counties just across the state line from Gogebic County were also in the top quarter. In terms of concentrations of professional-technical knowledge or creative workers, Houghton County is in the top 5 percent of all U.S. non-metropolitan counties in terms of the density of these creative workers. Adjacent Keweenaw County is in the top quarter. Gogebic County was also in the top quarter of non-metropolitan counties as were the adjacent Wisconsin counties across the state line: Iron, Vilas, and Oneida.
4

An Economic Overview of the Development of the Keweenaw Peninsula Economy & of an Entrepreneurial Support System, Phil Musser, http://kedabiz.com/about.html#historical . 5 David A. McGranahan. See The rural growth trifecta: outdoor amenities, creative class and entrepreneurial context, Journal of Economic Geography, 11(3):529-557, 2011, David A. McGranahan, Timothy R. Wojan and Dayton M. Lambert.

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The Keweenaw Economic Development Alliance (KEDA) has also recognized the economic potential represented by this combination of a concentration of professional/technical workers, a vibrant urban center that is also home to two institutions of higher education, and the high quality of life associated with the Upper Peninsula-Lake Superior location. KEDA has adopted an economic gardening approach focusing on creating a business support system for technology firms, including high tech incubators and customized business assistance. KEDA has experienced technology commercialization professionals on staff to provide assistance at its three technology incubator facilities. KEDA reports initial success in this effort. 6 This is not just relevant information for the Houghton-Hancock and Ironwood areas. Almost all of the five-county Western UP study area is within commuting distance of the three regional trade centers serving that area: Houghton-Hancock, Ironwood, and Marquette. There is an interdependency between these urban trade centers and the surrounding smaller towns and rural areas that can lead to a sharing of the benefits of economic development in both urban and rural areas if appropriate local economic development strategies are adopted. Quality of life matters economically: protecting natural landscapes, air and water quality, wildlife, and recreational opportunities protects an important part of a locales economic base. Similarly with urban and community amenities: good schools, attractive public spaces, diverse and interesting culture and cultural opportunities. An independent and active business and non-profit community is also important in supporting entrepreneurial activity. Mining and mill towns have the potential to undermine most of these important local qualities both because they are land and natural resource intensive, seriously or even permanently degrading them. The uncertainty and volatility associated with metal mining and processing also creates economic insecurity that can undermine a community, leading to long commutes and significant leakage of payroll out of the community. That uncertainty can also discourage investment in the community and a certain level of passiveness or fatalism which does not support entrepreneurial activity. Instead, a company town mentality of passive dependence can emerge. Our analysis in this report has documented all of the following: i. There are significant costs associated with mining activities that tend to offset the positive impacts of the high pay associated with mining jobs.

Phil Musser, An Economic Overview of the Development of the Keweenaw Peninsula Economy & of an Entrepreneurial Support System, Keweenaw Economic Development Alliance, p. 3. Undated.

ii.

iii.

iv.

v.

The economies of the Western Upper Peninsula have been successfully transitioning away from past reliance on unstable land-based, exportoriented economic activities. The attractiveness of a place in terms of its social and natural amenities is an important part of that places economic base and future economic vitality. For that reason, economic activities that damage those attractive local characteristics are incompatible with the current sources of economic vitality and, if allowed to develop, will displace other important economic activities in the region. The Western Upper Peninsula has begun to develop a cluster of entrepreneurial manufacturing firms and other supporting firms build around social and cultural assets, high tech knowledge workers, attractive small urban areas, and high quality recreational amenities.

For all of these reasons, it is our professional judgment that a return to metal ore mining and processing in the Western Upper Peninsula would damage, not improve, regional economic well-being and vitality. Instead, the economic development focus should continue to be on local economic gardening and further developing the positive economic trends already under way.

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I.IntroductionandStudyObjective
MetalmininghasbeenpartofthehistoryofthehumanhabitationoftheWesternUpper Peninsula(UP)foraverylongtime.ForcenturiesbeforeEuropeansmigratedintotheUP, NativeAmericanshadminedthenativecopperoftheKeweenawPeninsula,IsleRoyale,and OntonagonCounty,converteditintotoolsandartobjects,andtradedthemwidelywithother groupsacrossNorthAmerica.OneofthethingsthatinitiallydrewEuropeanstotheKeweenaw areawasthecopperdepositswhichtheyproceededtodevelopandexporttodistantmarkets. ThispartoftheWesternUPcametobecalledtheCopperCountrybecauseofthat.However, copperwasnottheonlymineralminedintheWesternUP:Ironorewasproducedtothesouth inGogebicCountyontheWisconsinMichiganborderwherethecountyseatwasnamed IronwoodandacountyoneachsideoftheWisconsinandMichiganlinewasnamedIron County. Likeminingeverywhere,theproduction,employment,andincomefromminingintheWestern UPwereerratic,swingingbetweenboomsandbusts.TheopeningoftheWhitePinecopper mineinOntonagonCountyin1953setoffthelastboomincopperproductionintheUPwith employmentincopperoreminingandprocessingatWhitePinereachingabout3,000in1974. By1984ithadfallentonearzerobeforepartiallybouncingbacktoemployingabout1,000 workersinthelate1980sandearly1990s.Butby1995mostoftheWhitePineoperationwasin theprocessofpermanentlyshuttingdown.IronminingintheWesternUPbeganitsterminal declinebeginninginthe1950sasthequalityoftheoredeclinedanditwasnolongerprofitable toshipwithoutconsiderableandcostlyprocessing.ThelastshipmentofironorefromGogebic Countywasin1967. Recently,however,avarietyofmetalminingprojectshavebeenproposedfortheWesternUP area.ThemostdetailedproposalsincludetheCopperwoodMineontheshoresofLakeSuperior inGogebicCountyandtheproposedGogebicTaconiteMineinthepartoftheGogebicIron RangejustsouthwestoftheMichiganWisconsinborder.Othercopper,nickel,uranium,iron, gold,silver,andplatinumgroupprojectsintheUpperPeninsulahavereachedatleastthe explorationstage.Itispossiblethathistorymayrepeatitselfintheformofanothermetal miningrushtotheWesternUP. GiventhepromiseofadditionalhighpaidjobsfortheWesternUPaswellasthehistoryof socialandeconomicdisruptionandenvironmentaldamageassociatedwithpreviousmetal miningboomsandbusts,theFriendsoftheLandofKeweenaw(FOLK)havebeenseekingto encourageabroadbaseddiscussionofthebenefits,costs,andrisksassociatedwiththe WesternUPagaincommittingitselftometaloreminingandprocessing. FOLKhascalledforapublicassessmentofnewmetalmining:aregionaldiscussioninwhich citizenscouldhaveavoiceonwhethertheybelievethataresumptionofmetalminingisinthe regionsbestinterest.Tothatend,FOLKhaslaunchedagrassrootsMiningEducationand CitizenEmpowermentCampaign.Theobjectiveofthispubliccampaignistoprovidecitizens,
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communityleaders,andprivateandpublicinstitutionswiththecapacitytomakeinformedand responsibledecisionsregardingnewminingprojectsintheWesternUpperPeninsula.This requiresthatinformationbemadeavailableonthelikelyimpactsofareturntoametalmining economyontheregionsnaturalandsocialenvironmentsandeconomy. FOLKcommissionedthisstudyoftheWesternUpperPeninsulaeconomyandthelikelyimpact ofmetalminingonthateconomyaspartofFOLKsMiningEducationandCitizen EmpowermentCampaign.Theobjectivesofthestudywereto: i.CarefullyanalyzethecurrenteconomyinafivecountyWesternUPstudyarea (Keweenaw,Houghton,Baraga,Ontonagon,andGogebicCounties)anddescribehowthat economyhasbeenevolvingsincemetalminingceasedintheregion. ii.CarefullyanalyzetheimpactofminingontheWesternUpperPeninsulainthepastas wellastheimpactofmininginvariousregionsacrossthenation.Theobjectiveistounderstand boththeeconomicpromiseofminingaswellastheactualeconomicperformanceofmining communities.Thisinformationwasthentobeusedtodiscussthelikelyimpactontheregional economyofthevariousminingproposalsthathaverecentlybeenmade. iii.Carefullycomparethetrajectoryonwhichareturntominingwouldputtheregion comparedtothetrendsintheeconomythathasbeendevelopingintheregionoverthelast decadeormore. iv.Onthebasisoftheaboveeconomicanalysis,makerecommendationsaboutthemost productiveeconomicdevelopmentpathfortheregion.
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II.ShiftingOurGazefromtheEconomicRearViewMirror:TheDangersofa FocusonLandBasedExports

1.HowWeLookatandThinkabouttheLocalEconomyandLocalEconomicWellBeing
Theexportbaseoreconomicbaseviewofthelocaleconomyisoneofthemostwidelyshared piecesofpopulareconomicunderstanding.Mostofuslearnedthiswayofunderstandingour localeconomiesfromourparents,grandparents,elementaryschoolteachers,andneighbors. Wewereinformallytaughttalesoflivelihoodsthatexplainedtoushowourfamiliesseveral generationsbackcametoinhabitareasandmadelivingsforthemselves.Thatpopularorfolk economicstendstostickwithusjustasotherculturalvaluesandtraditionsdo.Itsimply becomespartofthewaywelookattheworld.

ThetraditionaleconomicbaseofanareaisusuallyassociatedwithfolktalesofhowEuropean Americanscametoinhabitanyparticularareaandbuiltasuccessfulandenduringeconomy. Thisviewiscalledanexportbaseviewbecauseitfocusesontheeconomicactivitiesinwhich thelocalpopulationspecializes,producingmorethanitneedsforitsownconsumption,and exportsthesurplustotherestofthenationalorworld.Thoseexportsareseenasbringing moneyintothelocaleconomyfromoutside.Thatmoneythencancirculatewithinthelocal economyputtingpeopletoworkinlocallyorientedeconomicactivitiesandallowingthe importingofvitalgoodsandservicesthatcouldnotbeeasilyoreconomicallyproducedlocally. Unlessthelocalresidentswanttoliveaselfsufficient,nonmonetary,subsistencewayoflife, thoseexportsandtheresultingincomeflowsintotheeconomyfromoutsidesourcesare necessaryforamodern,vitaleconomy.Inthatsensethoseexportorientedactivitiesareseen astheregionseconomicbase:theeconomicenergydrivingthelocaleconomy. Mostregionshaveanexportorientedfolkstory:IntheUpperPeninsulaofMichiganandthe WesternUpperPeninsulaareaitislinkedheavilytometalminingandthetimberindustry.In Arizonaitiscattle,cotton,andcopper.ItisautomobilesinDetroit,dairyfarmsinWisconsin, corninIowa,wheatandcattleontheGreatPlains,timberandhydroelectricpowerinthe PacificNorthwest,coalinAppalachia,etc. Nowidelyheldpopularunderstandingofthissortcouldhavebecomeestablishedandpersisted forsolongunlessithadanimportantelementoftruthtoit.InthecontextoftheEuropean Americansettlementofacontinentlargelydepopulatedofitsindigenouspopulationby disease,warfare,andremovaltoreservations,theexportbaseviewwaslargelyaccuratein depictinghowsettlerswereabletomovefromsubsistencehomesteadsonawilderness frontiertoaprosperouscommercialeconomy.Whateveritshistoricalaccuracy,however,itis importanttoaskwhetherthatoriginal19thandearly20thcenturyeconomicinsightisa sufficientguideforunderstandingamodern21stcenturyeconomy.Aswewillexplainbelow thatexportbaseviewofthelocaleconomyisnowseriouslyincompleteandneedstobe supplementedinseveralimportantwaysthatallowustoaccuratelylookatthetotaleconomy andallthesourcesoflocaleconomicwellbeingwhenmakingpubliceconomicpolicydecisions.

2.CompletingOurAnalyticalViewoftheLocalEconomy:TheTotalEconomy
Aswewilldevelopinmoredetailbelow,therearethreeotherimportanteconomicinsightsthat havetobeintegratedwiththeexportbaseviewtocompleteourviewofthelocaleconomy: A. Theexportbaseviewfocusesonlyonwhatcreatesalocaldemandforworkers. Inthatsenseitignorestheotherhalfofthetwinsupplydemandbladesofthe economicscissors,theimportantroleofthelocalsupplyoflaborin encouragingtheexpansionoflocaleconomicactivity.

B.

C.

Theexportbaseviewfocusesonlyoncommercialgoodsandservicessoldin marketsinexchangeformoney.Itignoresnoncommercial,nonmarketsources ofscarceandvaluablegoodsandservicesthatsupportandfacilitatecommercial activitiesandcontributetolocaleconomicwellbeing.Theseincludecleanair andwater,sceniclandscapes,wildlife,crimefreeneighborhoods,comfortable climaticconditions,goodschoolsandotherpublicinfrastructure,etc. Theexportbaseview,asthenamemakesclear,focusesonexportsasthesole determinantoflocaleconomicvitality.Itsmessageisthatonlyexportsmatter. Weneedtounderstandthatlocallyorientedeconomicactivityisnotapassive, unimportantorsecondaryaspectofthelocaleconomy.Bycapturing,holding, andrecirculatingincomethatcomesintothelocaleconomy,theweboflocally orientedeconomicactivitiescreatesthemultiplierimpactsassociatedwith exportandotherincomeinjectedintothelocaleconomy.

A.IncorporatingLaborSupplyintoOurViewoftheLocalEconomy Theexportbaseviewfocusesonthecommercialforcesthatdrawworkersandtheirfamiliesto aparticulararea.Whataretheexportorientedactivitiesthelocalareacansupportandthus createalocaldemandforworkers?Inafrontiereconomythesearelikelytobelandbased economicactivities,hencethefocusonmineralextraction,forestproducts,ranching,and farming. Thatnarrativehasacompellinghistoricalringtoit.Butmosteconomicactivitiesinthe21st centuryarenotlandbased.Thetotalofalljobsinagriculture,mineralextraction,andforest productsrepresentsonlyabout3percentoftotaljobsintheAmericaneconomyin2011.7 ClearlywecannotexplainthelocationofeconomicactivityacrosstheAmericanlandscapeon thebasisofthistinypartofthetotaleconomy.Wehavetobeabletoexplainwhynonland basedeconomicactivitylocateswhereitdoesindependentofthistinylandbasedsliverofthe overalleconomy. Evenifwestickwithafocusonexportorientedeconomicactivitiesastheenginedrivingalocal economy,wearestillleftwiththequestionofwhyaparticularexportorientedfirmchoseto locatewhereitdid.Ifwecannotexplainthat,wehavenotreallyexplainedwhattheeconomic forcesaresupportingthelocaleconomy.Forinstance,muchoflightmanufacturing(computer assembly,chipmanufacturing,applianceassembly,etc.)aswellasexportorientedservices (publishers,informationbusinesses,financialservices,technicalsupport,professionalservices, etc.)arerelativelyfootlooseintermsofwheretheylocate.Thefertilityoftheland,minerals intheground,commerciallyvaluablenaturalvegetationincludinglivestockforageandtimber areunlikelytoprovideanexplanationforwhymostofthefirmsfoundintheHoughton,
Agriculture,agriculturalservices,fishing,forestry,mining(includingoilandgas),woodproducts,paper,and primarymetals.U.S.DepartmentofCommerce,BEA,REISdatabase. http://www.bea.gov/regional/spi/default.cfm?selTable=SA25N&selSeries=NAICS
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Ironwood,orMarquetteareaschosetolocatethere.Forthatreason,theexportbaseviewof theeconomyprovidesonlylimitedinsightintothelocalsourcesofeconomicvitality. Businesseslocateinparticularareasforawidevarietyofreasons,buttwoconsiderationsare almostalwaysimportant: i.theavailabilityofasufficientlyskilledworkforceatanaffordablecost,and ii.accessatanaffordablecosttothemarketsforthefirmsproducts. Thegeographicdistributionofthepopulationandpeoplespreferencesforwheretheywould liketoliveinfluencebothoftheseimportanteconomicconsiderations.Businessescannot affordtoignoreeitherofthese:marketsandthecostofreachingthemandanadequatelabor supplyatareasonablecostarecentraltoanybusinesslocationdecision. Theexportbaseviewoftheworldimplicitlyassumesthatpeopledonotcarewheretheylive. Peopleareassumedtopassivelygotowherethejobsarebecausetheyhavenochoiceifthey wanttobeemployedandtheirfamiliestoprosper.Butinthe21stcenturycontinentwide Americaneconomy,individualsandfamiliesdohaveachoiceastowheretheylive.Theyfacea broadrangeofeconomicopportunitiesmixedwithanequallybroadrangeofregionsand communitiesthathavediversesetsofattractiveandunattractivecharacteristicsthatare unrelatedtojobavailabilityandpay.Individualsandfamiliescanmaketradeoffsandchoices thatmixlabormarketopportunitiesandthelevelofpaywithotherlocalcharacteristicssuchas qualityofschools,crimerates,levelsofcongestionandcommutingtime,intensityofsocial conflict,paceoflife,neighborliness,culturalvariety,recreationandculturalopportunities,etc. Thisisnottosuggestthatallcitizensarerootlessorfootloose,quitetheopposite.Many peoplearecommittedtoplaceorbecomecommittedandmakesignificantsacrificesintermsof labormarketopportunitiesandaccesstosocialandnaturalamenitieslocatedelsewhereto resideinthatplace.Farmfamiliescommittedtofarmsthathavebeenintheirfamilyfor generations,membersoffamiliesthathavecontinuedtoliveinparticularareasformany decades,orNativeAmericancommittednotonlytotheirreservationsbutalsotothe landscapesthattheirancestorsinhabitedforcenturiesarejustafewexamplesofpeople committedtoplace.Thosecommitmentsareexpressionsofthesitespecificvaluesthathold peopleinplaces.Thosecommitmentsalsohaveimportanteconomicimplications. Areasthathavemixesofqualitiesthatmakeiteasyforthoseareastoattractandhold residentswillhavearelativelylarge,diverse,andskilledworkforceavailableatasomewhat lowerprice.Alternatively,suchareascangetworkerstomovetotheareawithoutwagesbeing bidupsignificantly.Thatmakessuchareasattractivetobusinesses.Thefactthatbusinessesare runbypeoplewhoalsohavepreferencesaboutwheretheyandtheirfamiliesliveonlyaddsto theeconomicimportanceofacommunitysattractivequalities.Totheextentthedynamic betweentheattractivenessofacommunitytonewresidentsandbusinesseshastriggered ongoingeconomicdevelopment,localmarketsforgoodsandserviceswillalsobeexpanding, increasingtheeconomicattractivenessoftheareatofirms.
5

Inbrief,laborsupplyanditscostandthelocationofpopulationconcentrationsmatterto businesses.Areasthatattracthighqualityworkersatarelativelylowpricewill,inturn,be attractivetobusinessfirms.Ignoringlaborsupplyandfocusingonlyonlabordemand,asthe exportbaseviewdoes,isinappropriateeconomicanalysis.Asinmostcomponentsofamarket economy,bothsupplyanddemandmatter. Itisimportanttokeepinmindthatconceptually,wedonothavetochoosebetweentheexport baseviewoftheeconomyandtheresidentiallocationchoiceview.Thesetwoviewsencompass betweenthetwoofthemthetwoprimarymarketforcesofsupplyanddemand.Weshouldbe carefultoconsiderboth.Therelativeimportanceoflaborsupplyandlabordemandcanbe expectedtoshiftovertimeandvaryacrossgeographicareas.Atanyparticularlocationata giventime,therelativeimportanceofthesetwosetsofforcesisanempiricalmatter.Local economicdevelopmentpolicy,however,maychoosetofocusstrategicallyonsomeelementsof oneorbothofthesesetsofeconomicforces. B.LookingatAllSourcesofEconomicValueIncludingNonMarketEconomicValues Theeconomicdynamicdescribedabovehasbeencalledamenitysupportedlocaleconomic development.Thiseconomicpotentialinsomewaysistheoppositeoftheeconomicforcethat theexportbaseviewoftheeconomyemphasizes.Withintheexportbaseview,peoplemoveto wherethejobsare.Withintheamenitysupportedeconomicdevelopmentmodel,economic activityfollowstheresidentialpreferencesofthepopulation.Economicactivityshiftsinthis waybecausetheexistenceoflocalamenitiesprovidesbusinesseswithaccesstoalowercost skilledlaborforceandtomarketsfortheirgoodsandservices.Inessence,becauseworkersand familiesvaluelocalamenities,theyarewillingtosacrificeacertainamountofincometogain accesstothosesitespecificqualities.Theyacceptlowerwagesthantheycouldearninless attractivelocationsasaneffectivepriceofadmissiontowhatpotentialresidentsjudgetobe amorevaluablesetoflocalqualities.Thetotalrealincomebeingreceivedbyresidentscomes intwoparts:Thevalueoftheconventionalpaycheckandthevalueofthesitespecificamenities towhichlivinginthatlocationprovidesaccess.Thevalueofthoselocalamenitiesprovides residentswithasecondpaycheck.8 Thisisnotanewwayoflookingatthelocaleconomy.Sincethemid1950seconomistshave emphasizedtheimportanceofresidentiallocationdecisionsasapowerfuleconomicforce. Theyfocusedontheroleoflocalenvironmentalamenitiessuchasclimateandnatural
EdWhitelawattheUniversityofOregonandwithECONorthwestcoinedthatphrase.Localeconomiescanbea bitmorecomplicatedthanthis.Asthelocaleconomyexpands,limitedsuppliesoflandforcommercialand residentialdevelopmentcanleadtolandvaluesrising,increasingboththecostoflivingandthecostofdoing business.Thiscanultimatelyworktostabilizecommunitysize,limitingthatlocationtothoseforwhomitisthe mostproductivesiteforabusinessandtothoseresidentswhomosthighlyvaluethequalitiesofthatlocation.The highercostoflivingwillreducethepurchasingpoweroflocalwagesandresidentswillpayaneffectiveaccessfee intheformoflowerreal(costoflivingadjusted)wages.Totheextentthattheavailablelandbaseisnotaserious constrainonongoingdevelopment,theeffectivepriceresidentspaytogainaccesstothequalitiesassociatedwith thatlocationarelikelytobereflectedinthelowerpaytheyacceptcomparedtowhattheycouldearninless attractivelocations.
8

landscapesinthesettlementofthedesertSouthwest(includingArizona,NewMexico,and SouthernCalifornia),Florida,andthePacificNorthwest.9Tieboutunderlinedthefactthat peopleshoparoundforthesocialamenitiesproducedbydifferentlevelsoflocalgovernment taxationanddifferentpublicspendingpatternssuchasonschools,parks,androads.10Borts andSteinarguedthatinamobile,openeconomy,itwouldbeanareasabilitytoattractand holdalaborforcewithoutbiddinguplaborcoststhatwoulddeterminethegeographic distributionofeconomicactivity.11 Theseeconomicforcestiedtolocalamenitieshave,infact,transformedmanypartsofthe nationseconomicgeographyandhelptoexplaintheaboveaverageeconomicperformance acrossmostoftheMountainWest,aswellasintheSoutheastandthePacificNorthwestover thelasttwodecadesbeforetheGreatRecessionstruck.12TenyearsagotheEconomicResearch ServiceoftheU.S.DepartmentofAgriculturepublishedaspecialeditionofRuralDevelopment PerspectivesontherapidgrowthinpopulationintheruralcountiesoftheMountainWest. ThatgrowthattractedattentionofanalystsbecauseitcouldnotbeexplainedbytheMountain Weststraditionallandbasedactivitiesofmineralextraction,forestproducts,farming,and ranching,allofwhichwereinrelativeorabsolutedecline.TheseUSDAstudieswerefocusedon thenonmetropolitanWest,whereonewouldexpectthesetraditionallandbasedeconomic activitieswoulddominate.Thetitlesofthestudiesindicatedthecommontheme:Amenities IncreasinglyDrawPeopletotheRuralWest.QualityofLife,NontraditionalIncomeand EconomicGrowth:NewDevelopmentOpportunitiesfortheRuralWest,WildlifeConservation andEconomicDevelopmentintheWest,andJobsFollowPeopleintheRockyMountain West.13 Thishalfcenturyofeconomicresearchsimplyunderlinestheimportantrolethatnon commercial,nonmarketgoodsandservicescanplaybothincontributingtotheeconomicwell beingofindividualsandhouseholdsaswellastheeconomicvitalityofcommunities.Someof thesenonmarketeconomicvaluesarehumancreated,othersaregiftsofnature,flowingas theydofromwellfunctioningnaturalsystems.Allofthemareoftenencompassedinthelarger conceptofqualityoflifeorlocalamenities. C.Capturing,Holding,andCirculatingIncomeintheLocalEconomy Ourthinkingaboutthelocaleconomyhastomovebeyondanonlyexportsmatterpointof view.Theexportbaseviewoftheeconomyimplicitlytakesthatpointofview,effectively dismissingthebulkoflocaleconomicactivityassecondaryorpassive.Thisisanimportant error.Aswewillshowbelow,atraditionalexportbaseviewoftheeconomycannotexplainthe
Ullman,Edward,1954,AmenitiesAsaFactorinRegionalGrowth,GeographicReview,44(1):119132. Tiebout,Charles,1956,APureTheoryofLocalExpenditures,JournalofPoliticalEconomy,64(2):160164. 11 Borts,G.H.,andJ.L.Stein,1964,EconomicGrowthinaFreeMarket,NewYork:ColumbiaUniversityPress 12 ThomasM.PowerandRichardBarrett,PostCowboyEconomics:PayandProsperityintheNewAmericanWest, IslandPress,Spring2000. 13 SeethespecialissueofRuralDevelopmentPerspectivesontheruralWest,14(2),August1999,USDA,Economic ResearchService.
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actualeconomicvitalityoftheWesternUPcounties.Herewefocusontheimportanteconomic roleoflocallyorientedeconomicactivityinboostingthelocaleconomy. Exportsbythemselvesdonotcreatealocaleconomy.OntheNorthSlopeofAlaskabillionsof dollarsworthofoilhasbeenproducedbutthereisalmostnolocaleconomyontheNorth Slope.Thevalueofthatoilandthewagesearnedproducingitallflowtootherareasagreat distancefromtheNorthSlope,theplaceswherepeopleactuallyliveandwherethereisthe commercialinfrastructureinwhichthatincomecanbespent.Thisisanextremeexample,but themining,timber,cattle,andfarmtownsthatgrewuparoundaprimaryexportoftenhad similarlimitingcharacteristics:Theincomegeneratedbytheexportsprimarilywenttofund imports.Thatis,theincomefromtheexportsalmostimmediatelyleakedoutoftheregion. Thatiswhymanyoftheminingandmilltownsbecametheequivalentofghosttownsas demandfortheexportsdeclinedortechnologicalchangereducedthesizeoftheworkforce neededtoproducetheexports.Empiricaleconomicanalysisoftheimpactofnaturalresource activitiesinruralareasconfirmsthatthemultiplierimpactsassociatedwithnaturalresource extractionactivitiesincontemporaryruralareascanalsobenearlyzero.14 Theactualsizeoftheimpactofanexportactivityonthelocaleconomyisdeterminedbythe interactionoftwosetsoflocaleconomiccharacteristics:Thesizeoftheflowofincomeintothe localeconomyfromtheoutsideandtheweboflocaleconomicinterconnectionsamong residentsthatcapturesandcirculatesthatincomeamongbusinessesandhouseholds.The multiplierimpactsassociatedwithexportincomeisdeterminedbythatabilitytocaptureand circulateincomelocally.Itisthelocalwebofspecializedandinterdependentbusinessesand householdsthatactuallymakeupthelocaleconomy.Withoutthoselocallyorientedbusinesses therecanbeenormousexportflowsbutonlyaveryprimitive,underdevelopedlocaleconomy. Bothexportorientedandlocallyorientedbusinessescontributetothevitalityofthelocal economy.Itcanbeaseriouseconomicerrortoignoreeitherofthesetwosidesofthelocal economy. D.ConclusionsontheLimitsoftheExportBaseViewoftheLocalEconomy Theimportanceofamenitysupportedlocaleconomicvitalityintransformingtheeconomic geographyofmuchoftheUnitedStatesincludingmanynonmetropolitanandruralareas cannotbesafelyignoredwhenevaluatingthelikelyeconomicimpactsofarevivalofcopperand othermetalminingintheWesternUP.Localeconomicvitalityandlocaleconomicwellbeing arenotprimarilydeterminedbythesamelandbasedeconomicactivitiesthatfacilitatedthe originalEuropeanAmericansettlementoftheUPinthenineteenthcentury.Althoughthose traditionaleconomicactivitiesmayremainsignificanttosomelocaleconomies,ingeneralthey havenotbeenthesourceofnewjobsandincomefortheregion.Theeconomicimpactsofthe copperandothermetaloreminingandmillingoperationsneedtobeputintoalongrun
ATestoftheEconomicBaseHypothesisintheSmallForestCommunitiesofSoutheastAlaska,GuyC. Robertson,U.S.DepartmentofAgriculture,ForestService,PacificNorthwestResearchStation,GeneralTechnical Report,PNWGTR592,December2003.http://www.fs.fed.us/pnw/pubs/pnw_gtr592.pdf
14

economicdevelopmentcontext:Whatarethesecopperandothermetalminingactivitieslikely tocontributetothesustainedeconomicdevelopmentoftheregion? Inansweringthatquestion,theimportanceoftheattractivenessofaregiontonewresidents andbusinesseshastobeconsideredalongsideanyparticularproposaltoboosttheregions exports.Totheextentthatareindustrializingoftheregionaroundcopperandothermetal miningdamagestheregionsattractivenessasaplacetolive,work,raiseafamily,anddo business,itmayunderminefutureeconomicvitalityratherthanstimulateit.Totheextentthat thosemineralextractionactivitiesarealsounstable,generatingboomsandbuststhatweaken communitiesandeconomiesratherthanstrengthenthem,thereisevenmorereasontobe concernedaboutwhatthatrevivalofcopperandothermetalminingintheregioncanactually contributetolocaleconomicvitalityandwellbeing.

3.Summary
Mostregionshaveanexportorientedfolkstorythatexplainswhattheprimaryengineisthat drivestheregionaleconomy:IntheWesternUpperPeninsulaofMichiganthatlivelihood storyislinkedheavilytometalminingandthetimberindustry.ItisautomobilesinDetroit, dairyfarmsinWisconsin,corninIowa,wheatandcattleontheGreatPlains,timberand hydroelectricpowerinthePacificNorthwest,coalinAppalachia,etc.Theseindustriesareseen astheexportbasethatdriveseconomicdevelopment. Aswewillexplainbelow,thatexportbaseviewofthelocaleconomyisnowseriously incompleteandneedstobesupplementedinseveralwaysthatallowustoaccuratelylookat thetotaleconomyandallthesourcesoflocaleconomicwellbeingwhenmakingpublic economicpolicydecisions. Aswedevelopedinmoredetailabove,therearethreeimportantothereconomicinsightsthat havetobeintegratedwiththeexportbaseviewtoprovideacompleteviewofthelocal economy: i Theexportbaseviewfocusesonlyonwhatcreatesalocaldemandforworkers.Inthat senseitignorestheotherhalfofthetwinsupplydemandbladesoftheeconomic scissors,theimportantroleofthelocalsupplyoflaborinencouragingtheexpansionof localeconomicactivity. ii Theexportbaseviewfocusesonlyoncommercialgoodsandservicessoldinmarketsin exchangeformoney.Itignoresnoncommercial,nonmarketsourcesofscarceand valuablegoodsandservicesthatsupportandfacilitatecommercialactivitiesand contributetolocaleconomicwellbeingsuchascleanairandwater,sceniclandscapes, wildlife,crimefreeneighborhoods,comfortableclimaticconditions,etc.
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iii

Theexportbaseview,asthenamemakesclear,focusesonexportsasthesole determinantoflocaleconomicvitality.Itsmessageisthatonlyexportsmatter.We needtounderstandthatlocallyorientedeconomicactivityisnotapassive,unimportant orsecondaryaspectofthelocaleconomy.Bycapturing,holding,andrecirculating incomethatcomesintothelocaleconomy,theweboflocallyorientedeconomic activitiescreatesthemultiplierimpactsassociatedwithexportsandotherincome injectedintothelocaleconomy.

Back to table of contents

III.TheLocalEconomyThatHasActuallyDevelopedintheWesternUPoverthe LastSeveralDecades

1.DataSourcesUsedinthisReport
Inthisreportwewilloftenrefertoeconomicstatisticsthatdescribethepastandpresent performanceoftheWesternUPregionaleconomy.AppendixBattheendofthisreport discussestheapproachwetooktothisstudyandthedatasources.Allofthedatacamefroma federaldatabasemaintainedbytheBureauofEconomicAnalysisintheU.S.Departmentof Commerce.ThatdatacollectioniscalledtheRegionalEconomicInformationSystem.15 Wheneverwepresenteconomicdatainafigureortable,wewillbeusingthatdatabase unlesswenoteotherwise.Whenwearepresentinghistoricalincomeinformationwewillhave adjustedittodollarsofconstantpurchasingpowerusing2010dollarsasthereferencepoint. Suchadjustmentsofhistoricaldata,expressedindollartermstoremovetheeffectsofinflation, issaidtoproducerealvalues.Theyarecalledrealvaluesbecausedollarsofconstant purchasingpowerareusedsothatthemeasurementsarenotmadeinunitsthatvaryinsize overtime.

2.TrendsintheDevelopmentoftheEconomyoftheWesternUpperPeninsula
TheprimarysourcesofjobsintheWesternUPin2010wereinservices,retailtradeandvisitor services,andgovernment.FigureAbelowshowsthedistributionoftotalemploymentamong thevariousindustriesinthefivecountystudyarea.Thereaderwillnotethediversesourcesof employment,withatleastninemajorsourcesofjobs.Itwillalsobenotedhowsmallthe contributionofminingistocurrentemployment.Thiseconomicdiversityisinterestingbyitself. ItisevenmoreinterestingandinformativetostudytheevolutionofthisWesternUPeconomy overthelastseveraldecades.Thatisthepurposeofthissection.
15

http://www.bea.gov/regional/.

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FigureA.

Themostseriousproblemwiththeconventionalviewthatlandbasedeconomicactivitiessuch asmineralextractionandprocessing,forestproducts,andagriculturearetheenginesthatdrive ruraleconomiesisthatthatviewfailstoexplaintheactualperformanceoftheWesternUpper Peninsularegionaleconomy.Whilethetraditionalexportactivitieshaveofferedlittleorno stimulustotheregionaleconomyoverthelast40years,therestoftheeconomyhasexpanded nonetheless. Inourfivecountystudyregion,thenumberofjobsinmining,forestproductsandother manufacturing,andagriculturehasdeclinedby4,000jobsor55percentbetween1969and 2010.Mostofthatjoblosswasassociatedwiththedeclineincopperoreminingandprocessing atWhitePine.SeeFigureBbelow.
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FigureB.

Despitethismajorlossoflandbasedexportjobs,mostlyminingjobs,therestoftheregional economydidnotfollowtheexportbasedownward.Instead,jobsinothersectorsofthe economyactuallyexpandedsignificantly,adding12,100jobs,a70percentgain.SeeFigureC below. Clearlytherewereothereconomicforcessupportingjobgrowththatlayoutsidethetraditional exportbase.Thosepositiveeconomicforcesneedtobeidentifiedandfocusedonwhen consideringwaysofprotectingandenhancinglocaleconomicvitality. TheeconomicsectorsthatgainedthemostjobsintheWesternUPbetween1969and200016 wereprofessionalservicessuchashealthcareandvisitorservicessuchaseatinganddrinking 16 TableAfocusesonjobgrowthbetween1969and2000,notincludingthe20012010period.Thisisbecausein
theyear2001thefederalregionaleconomicstatisticsshiftedtoamoredetailedsetofindustries.Inruralareas suchastheWesternUP,however,theemploymentandincomeinformationforthosemoredetailedindustries couldnotbereleasedwithoutviolatingconfidentialityrulesaimedatprotectingthefinancialdetailsofindividual firms.Asaresult,verylittledatafortheruralpartsofourstudyareaareavailableforthefirstdecadeofthe21st century.

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establishmentsandaccommodations.Servicesadded4,300jobswhileRetailandWholesale Tradeadded2,600jobs.Althoughfederalgovernmentemploymentdeclinedslightly,Stateand LocalGovernmentadded3,900jobs.Othersectorsthathadsignificantjobgrowthincluded Construction,FinanceandRealEstate,andManufacturing.SeeTableAbelow.

FigureC.

Thegaininjobsinthemanufacturingsectorwasnotablesinceitistheonlypartofthe traditionalexportbasethatactuallyaddedsignificantnumbersofjobs.Thosejobsgainsin manufacturingcontinuedintothe2000s.Between2000and2006another150manufacturing jobshadbeenaddedinourfivecountystudyarea.TheHoughtonandBaragaCountiesactually added214manufacturingjobsduringthefirsthalfofthe2000s,beforetheGreatRecession struck.WewillreturntothisbrightspotintheWesternUPeconomybelow.

Despitethemassivejoblossesinmining,bymostmeasurestheregionaleconomydisplayed considerableeconomicvitality.Afterremovinginflation,averageincomeperresident increased73percentbetween1969and2010.Thetotalofalloftheincomereceivedby residentsincreased65percentininflationadjustedterms.Totaljobsgrewbyalmost40percent between1984and2007whentheGreatRecessionledtolayoffs.Totaljobsstillincreasedbya thirdbetween1969and2010.Population,however,declinedbeginningin1977.Fromitspeak thatyear,populationdeclined15percentsothatin2010itwas5percentbelowits1969level. SeeFigureDbelow.

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 TableA.

FigureD.

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Becauseinflationsystematicallyreducesthepurchasingpowerofthedollar,whenwemeasure incomeatdifferentpointsintime,wehavetoadjustthedollarvaluestoreflectdollarsof constantpurchasingpowersothatwearemeasuringincomeinunitsofthesamesizeno matterwhatyearwearestudying.Suchincomemeasuresadjustedtoremovetheeffectsof inflationarecalledrealincomesincethedollarsinanyyearrepresentthesamepurchasing power. ThegrowthinrealincomeperpersonintheWesternUPstudyareawasimpressivegiventhe significantjobslossesinmining.Between1969and2010theincreaseinrealpercapitaincome intheWesternUPwasalmostthesameasinthenationasawhole,73percentintheWestern UPand75percentintheU.S.ThegrowthinrealincomeperpersonintheWesternUPwas muchfasterthatthegrowthinstateofMichiganasawholewhichwasonly41percent.See FigureEbelow. Itisimportanttonotethattheabovediscussionofpercapitaincomefocusedonthegrowth rateratherthanthelevelofpercapitaincome.ThelevelofpercapitaincomeintheWestern UPremainswellbelownationalandstatelevels.PercapitaincomeintheWesternUPin2010 wasalmost30percentbelowthenationalleveland20percentbelowthestatelevel. Averageincomeperpersontendstobehigherinmoredenselysettledurbanareas.Asaresult theMichiganstateaverageannualincomelevelislargelytiedtothemostdenselysettledurban areasinthestatewhereover80percentofthestatespopulationlives.In2011,thecorrelation coefficientbetweenpopulationandaverageannualincomeamongthestatesmetropolitan areaswas0.53.Forthestatescountiesthecorrelationcoefficientbetweenpopulationand averageannualincomewas0.47.17Thelargerthepopulation,thehigherwastheaverage annualincome.AttheextremeinMichigan,theaverageannualincomeinthegreaterDetroit areawas$40,000forthe4.3millionpeoplelivinginthatmetroareain2011.Theaverage incomeacrossallofthestatesmetropolitancountieswasabout$37,400peryear.Forthestate asawhole,theaverageannualincomewas$36,300in2011quiteclosetotheaverageinthe metropolitanurbancenters.Forthenonmetrocounties,however,itwasonly$31,400.Clearly averageannualincomeforMichiganasawholewasclosertothemetropolitanaveragethanto thenonmetropolitanaverage.ForourWesternUPstudyarea,whichisentirelynonmetro,the averageincomewas$28,100,about90percentoftheMichigannonmetroaverage. ThisisnotjustapatterninMichigan.Thesameistrueacrossthenation.18Moredenselysettled areastendtohavehigherlaborproductivity,highercostofliving,andabroaderarrayofurban disamenities,allofwhichtendtopushaveragepayandincomeupward.Whethereconomic wellbeingandtheaverageincomeadjustedforthecostoflivingarehigherinthemoredensely settledareasisamoredifficultquestiontoanswer.
Thelogofpopulationwasused.Thecorrelationwassignificantatthe95percentlevel. SeePostCowboyEconomics:PayandProsperityintheNewAmericanWest,ThomasMichaelPowerand RichardN.Barrett,IslandPress:WashingtonDC,2001,pp.108115.
18 17

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FigureE.

ClearlytheWesternUPisneitherastagnantnoracollapsingeconomy.Whileithasbeen hithardinthepastbythechaoticfluctuationsintheminingindustry,theregionhasbeen growinganeweconomythatisquitedifferentfromthelandbasedexporteconomyofthe past.Itismorediversified.Amorecompletesetofcommercialeconomicactivitieshave developedintheregion.Incomeflowsassociatedwithinvestmentsandretirementhavebeen circulatinginthelocaleconomyinadditiontotheincomereceivedbyregionalworkers.Instead ofbeingaoneindustryregion,amorecompleteortotaleconomyhasbeendeveloping.

3.IncludingOtherEconomicActivitiesThatDrawIncomeintotheRegionalEconomy
Oneweaknessofthefocusonthetraditionalexportbaseisthatitfocusesontheproduction andexportofthings,rawmaterials,agriculturalproducts,manufacturedgoods,etc.Asthe oftendiscussedshifttoservicesshouldremindus,theproductionofmaterialgoodshas playedadecreasingroleinoureconomy.Moreandmoreofoureconomicactivityisfocusedon providingservicestocustomers.Oneofthemostdramaticallygrowingservicesectorshasbeen healthservices.Oururbanareashavebecomemedicalservicescenterswithhospitals,clinics, andgroupsofspecializeddoctorsandothermedicaltechnicians.Theseservicesmaynotbe exportedintheusualsense,buttheydodrawpeopleandtheirmoneyintothoseurbanareas withthesameimpactasanindustrythatisexportingaproduct.

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Medicalservicesarenottheonlyservicesectorthatplaysthisrole.Institutionsofhigher educationdothesamething.Theydonotexportproducts,buttheydrawstudentsfrom throughouttheregion,state,ornationandthefundsthatsupportthosestudentsthroughout theircollegeorgraduatetraining.MichiganTechnologicalUniversityandFinlandiaUniversityin theHoughtonHancockurbanareaclearlyareanimportantpartofHoughtonCountys economicbase.Studentandfacultyspendingaswellasabroadrangeofresearchand developmentgrantsandbusinessspinoffscontributesignificantlytolocaleconomicvitality. SimilarlyGogebicCommunityCollegeinIronwood,theotherurbantradecenterinourfive countystudyareaalsohassignificanteconomicimpactsinthesouthwesternpartofthestudy area.19Finally,thereistheKeweenawBayOjibwaCommunityCollegeoutsidethetownof BaragathatispartoftheKeweenawBayIndianCommunity. Thevisitoreconomy,includingtourism,isanotherimportantpartoftheeconomicbasethat importspeopleratherthanexportinggoods.Federalresearchershaveidentifiednon metropolitancountiesthatspecializeinprovidingrecreationalexperiencestovisitors.One concentrationofthoserecreationalcountiesislocatedintheUpperPeninsulaandnorthern Wisconsin.Thesecountieshaveahighshareoftheirjobsandpayrollinrecreationrelated industries,alargeshareofhousingunitsinseasonaluse,andrelativelyhighspendingpercapita onlodging. IntheWesternUP,Gogebic,Ontonagon,Keweenaw,andIronCountiesareclassifiedasnon metropolitanrecreationcountiesasaretheadjacentWisconsincountiesjustacrossthestate line.SeeFigureFbelow. Almostaquarterofthehousingunitsinourfivecountystudyareaarevacationhomes.In KeweenawCountyalmosthalfofthehomesfallintothatcategoryandinOntonagonCounty almostathirdofhomesdo.SeeTableBbelow. Intheabovediscussion,wehaveprovidedonlyafewexamplesofhowservicesectorscanbe animportantsourceofincomedrawnintothelocaleconomy.Otherprofessionalservicesalso tendtoclusterinurbanareasincludinglegal,financial,computer,andinformationservices,as wellastheartsandculturalactivities. Clearlyfocusingonthetraditionalexportbaseisamisleadingwayofthinkingabouta contemporaryeconomy,eveninarelativelyruralarea.Itmayprovideaninterestinghistorical viewthroughtherearviewmirror,butitisnotanaccurateviewoftheactualsourcesoflocal economicvitality.
19

http://www.gogebic.edu/news/2010/GogebicEconomicImpactSurvey2010Volume1Final.pdf

17


FigureF.

RuralCountiesSpecializinginCommercialRecreationintheNorthernMidwest

TableB.

Vacation(Seasonal)Homesinthe 5CountyWesternUPStudyArea,2010 County Total Housing Seasonal %of Housing Units HousingUnits UnitsSeasonal Baraga 5,270 1,383 26% Gogebic 10,795 2,490 23% Houghton 18,636 2,761 15% Keweenaw 2,767 1,278 46% Ontonagon 5,672 1,932 34% 5Counties 43,140 9,844 23% Source:2010Censusof HousingandPopulation;Western UpperPeninsulaEconomicDevelopmentStrategy2011, p.25,Table 3VII.

4.TheGrowthinManufacturingEmploymentintheWesternUP
Asmentionedabove,onepartofthetraditionalexportbasethathasshownsignsofvitalityin theWesternUPismanufacturing,atleastupuntiltheGreatRecessionbeganin2007.Backin
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theearly1980s,manufacturingjobsplummetedintheWesternUPasminingemployment declinedandtheWhitePineMinewasshutdownforthefirsttimein1984.Manufacturingjobs inHoughtonandBaragacountiesbegangrowingagainafter1985,adding1,100jobsby2006. Theotherthreecountiesinourstudyareaaddedanother160manufacturingjobsduringthat period.ClearlythemanufacturingjobgrowthwascenteredinHoughtonandBaragacounties withHoughtonCountythesourceof655andBaraga470ofthosenewmanufacturingjobs between1985and2006. Althoughwehavetalkedaboutmanufacturingactivitiesaspartofthetraditionalexportbase, mostofthenewmanufacturingjobscreatedintheWesternUPwerenotmanufacturing associatedwithmining,forestproducts,orfoodprocessing.Rathermuchofitwasassociated withthedevelopmentofadynamictechnologysectorintheareaaroundHoughtonHancock. Beginningin2001,theKeweenawEconomicDevelopmentAlliance(KEDA),inpartnershipwith MichiganTechnologicalUniversityandtheCitiesofHoughtonandHancock,havebeenfocused onestablishingabusinesssupportsystemfortechnologyfirms.Sincestartup,KEDAreports thatatechnologysectorof35to40companieshasbeencreated.Wewilldiscussthisinitiative todevelopnewmanufacturing,newproducts,andnewfirmslaterinthereport.

5.PuttingJobsandAssociatedPayrollinthePerspectiveoftheTotalEconomy
Mostdiscussionsoflocaleconomicvitalityandeconomicwellbeingfocusontheemployment opportunitiesavailableandthepayassociatedwiththosejobs.Inmanywaysthisemphasison jobsisappropriate.Adultstendtodefinethemselvesandtheirroleintheircommunitiesat leastpartiallyintermsoftheirwork.Employmentisimportantnotjustforeconomicreasons butalsoforculturalandpsychologicalreasons.However,whenwearetryingtounderstandall oftheeconomicforcesoperatingonaparticularlocalorregionaleconomy,weneedtobe carefultostudyalloftheincomeflowsinandoutofourcommunitiesandnotjustsomeof them. Forinstance,ifwefocusprimarilyontheincomeearnedonthejobinourfivecountyWestern UPstudyarea,wewouldfindthataboutonebilliondollarsinpayflowedtoindividualsand householdsfromthosejobs.Butifwelookatthetotalincomereceivedbyresidentsofthat studyregion,wewouldfindalmosttwiceasmuchincomebeingreceived,almosttwobillion dollars.SeeFigureGbelow.(Allincomedataisinrealterms,meaningtheimpactofinflation hasbeenremoved.) Ifwefocusonlyonthejobsinourstudyareaandtheaccompanyingpayroll,wewillignore almosthalfofallincomebeingreceivedbyresidents.

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FigureG.

Similarly,ifwemeasurelocaleconomicwellbeinglookingattheaveragepayassociatedwith allofthejobsinthestudyregion,wearelikelytoconcludethateconomicwellbeingdeclined inthe1970sandhasbeenstagnantsincethen.If,ontheotherhand,welookataverageannual incomeperperson(percapitaincome),weseeasteadyimprovementinwelloverthelasttwo decadesdespiteafewshallowdips.SeeFigureHbelow. If,insteadoffocusingonthefivecountiescombined,wefocusonOntonagonCounty,the countyinourstudyareathatheldontosubstantialmininguntilthemid1990s,averagepayper joband,assumedly,localeconomicwellbeinghavebeendecliningforalmostfortyyearsfora totaldeclineofabout40percent.Butif,afteradjustingforinflation,welookataverageincome (percapitaincome),ithasalmostdoubled,increasingby82percent,overthelastfortyyearsin OntonagonCounty.SeeFigureIbelow. ClearlywehavetolookatmorethanjustjobsandpayrolltounderstandhowtheWesternUP hasbeendevelopingoverthelastseveraldecades.Whenwedo,thesedivergenttrendsof stagnantordecliningrealpayperjobbutrisingpercapitaincomeshowninFiguresHandIare relativelyeasilyexplained.
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FigureH.

First,overthelastseveraldecadesmorefamilymembershavebeenworkingoutsideofthe home.Laborforceparticipationrateshavebeenrising.Thishashelpedboostthemoney incomeflowingintoourhouseholdsevenwhenpaylevelshavebeendepressedpartiallybythe expandingworkforcetakingentrylevelpositions.Inadditionandrelated,morepeoplehave beenworkingparttimesothattheycancombinemultipleobjectivessuchasgoingtoschool withalsoearningalivingortakingcareofchildrenandotherfamilymemberswhilealso earningsomeincome.Thereducedhoursperjobtendstoreducethepayperjob.Workers holdingmultiplejobspartiallyoffsetthat.Sincepercapitaincomeistotalincomedividedbythe totalnumberofpeople,asthefractionofthepopulationworkingrises,percapitaincomeis likelytomoveup,too,eveniftheannualpayassociatedwithsomeofthosejobsislowor falling.
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FigureI.

Second,peopledonotonlyreceiveincomefromtheircurrentpaycheck.Thosewhohavesaved andinvestedarealsolikelytobereceivingincomefromtheirinvestments:dividends,rent,and interest.Inaddition,thosewhohaveretiredarelikelytobereceivingpensionpaymentsand otherretirementbenefitssuchasmedicalinsurance.Finallythestateandfederalgovernments runincomesupportprogramsthatattempttoprovideasafetynetunderthosetemporarily unemployed(unemploymentcompensation)orthoselivingbeloworclosetopoverty(food stamps,Medicaid).SeeFiguresJandKbelow.

22

FigureJ.

FigureK.

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Whenalloftheseflowsofincomethatarenottiedtocurrentpaychecksareaddedup,they representasubstantialincomeflowtohouseholdsthat,alongwithwagesandsalaries,are reflectedintherisingpercapitaincome. Third,payrollisreportedonthebasisofwherethejobsarelocated,notwheretheworkers reside.Totheextentthatmanyoftheworkersatamineormillresidedinanothercounty, muchofthelossofincomefromtheshutdownofthemineormillwouldbefeltinother counties,notexclusivelywherethemineormillwaslocated.

Finally,percapitaincomeistotalincomedividedbypopulation.If,withthelossofemployment opportunities,residentsofanareamoveawaytowherejobsaremoreplentiful,thatlossof populationtendstokeeptheaverageincomeofremainingresidentshigher.Ifpopulationfalls fasterthanincomebeingreceived,averageincomecanactuallyrise.Thatisawarningthatwe shouldbecarefulaboutusinginpercapitaincomeasameasureoflocaleconomicwellbeing. Asaresultofallofthesefactors,despitedecliningorstagnantpayperjobintheWesternUP, percapitaincomehasbeenabletocontinuetorise.Infact,aftertheclosureoftheWhitePine Mineinthemid1990spercapitaincomeroseatthesamerateaspercapitaincomeroseacross thenationandsignificantlyfasterthanpercapitaincomeroseacrossthestateofMichigan.We willdiscusssomeoftheotherincomeflowsthatsupportedthisgrowthinaverageincomein moredetailbelow.

6.IncludingRetirement,Investment,andSupportPaymentIncome
Oneofthereasonsfortheapparentconflictingtrendsinpaychecksandaverageincomefound intheeconomicdatafortheregionisthatindividualsandhouseholdsreceivesignificant incomefromsourcesotherthanpaychecks.Thatis,incomeflowsintotheeconomyforreasons otherthanjustpaidemployment.Suchnonemploymentincomeflowsareprimarilytiedto: i. Investmentincome(dividends,interest,andrent), ii. Retirementincome,includingbothprivateandgovernmentpensionprograms. iii.Incomesupportprogramssuchasunemploymentcompensation,Medicaidproviding healthcaretolowincomefamilies,FoodStamps,andwhathascometobe calledwelfare. Thesecategoriesofnonemploymentincomearesomewhatrelatedandthelattercategory, incomesupport,istiedtotheemploymentsituationsomewhat. Investmentincomecanbereceivedbyworkingindividualswhoarenotevencloseto retirement.Ontheotherhand,individualsoftenprovidefortheirretirementbybuildingup savingsandinvestmentstosupportthemwhentheypartiallyorfullyretirefromtheworkforce. Evenprivatecompanyandstateandlocalgovernmentpensionprogramsarefundedinwhole orinpartbyinvestmentincomefromtheportfolioofassetsthatthepensionfundhas
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accumulatedovertime.Ontheotherhand,programssuchasSocialSecurityandMedicareare largelyfundedbycurrentspecialtaxesaswellasdirectfederalgovernmentspending,rather thanfrominvestmentincome. StatisticalanalysisofthevariationsininvestmentincomeandSocialSecuritypaymentsacross allthecountiesinMichiganindicatesthatabout55percentofinvestmentincomeisassociated withretirees.Whenthisiscombinedwithpaymentsunderfederalretirementprograms(Social SecurityandMedicare),theseretirementrelatedincomeflowstotaled$577millionin2010in ourWesternUPstudyarea,overhalfthesizeofalllaborincomegeneratedthere. Governmentincomesupportprogramsaredesignedtoassistpeopleduringeconomichard times.Whenthepayrollsturndownandunemploymentincreases,unemployment compensationpaymentsincreaseasdofoodstampandMedicaidexpenditures.Thoseincome supportexpendituresarecountercyclical,risingasoverallpayrollsfallandfallingasoverall payrollsrise. Thesumofallofthesevariousincomeflowsthatarenotassociatedwithcurrentemployment isnotsmall.In2010inourfivecountystudyarea,thesumofnonemploymentincomeflows wasalmostaslargeasthetotallaborearningsofthepopulation:Workerscollected$1.11 billioninpaywhilethecombinationofinvestmentincome,retirementincome,andincome supporttotaled$1.02billion.SeeFigureKabove. Notealsothatwhiletherehasbeenlittlegrowthinlaborearningssince1973,therehasbeen substantialgrowthinthesesourcesofnonemploymentincome.Thisgrowthinnon employmentincomecanbeseeninFigureKabovethatshowsthegrowthinretirementrelated income,otherinvestmentincome,andincomesupportprograms. Notethatretirementrelatedincomeflowsdominatethisnonemploymentincome.Income supportprograms(unemploymentcompensation,foodstamps,Medicaid,andotherwelfare programs),however,havebeenincreasinginimportance.Suchsupportpaymentsrisewhenthe economyturnsdownandemploymentandlaborearningsdecline.Itisnotsurprising, therefore,thatthesepaymentsgoingtostabilizetheincomeofhouseholdsroseduringthe GreatRecessionanditsaftermath. Theincreasedimportanceofincomesupportprogramswhenthelocaleconomyturnsdown canbeseenclearlyinFigureLbelowwhichfocusesonlyonOntonagonCountywherethe WhitePineMineandcopperprocessingfacilitieswerelocated.Duringthelayoffsatand ultimateshutdownoftheWhitePineMinefacilities,incomesupportprogramstemporarilyrose dramatically.Thatfigurenotonlydemonstratestheinstabilityinemploymentinminingbutalso thestressthatvolatileemploymentputsonthesocialsafetynetasminersgetlaidoffand,asa result,theentireeconomycontracts.
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FigureL.

7.TheLocalEconomyoftheWesternUpperPeninsula:ASummary
TheeconomyoftheWesternUPistypicallydiscussedintermsofitstraditionalexportbase: mining,forestproducts,andagriculture.Althoughtheseindustriesmaybeimportant,afocus onthemcannotexplainthedominanteconomictrendsintheregion.Whilethosetraditional regionalexportshavebeenadecliningsourceofjobsintheregion,employmentopportunities elsewhereintheeconomyhaveproliferated.Whileemploymentinthetraditionalexport sectorsdeclinedby4,000jobsbetween1969and2010,jobsinothersectorsincreasedbyover 12,000jobs,threetimestheloss.Itisunlikelythatwecanunderstandtheoverallregional economyifwefocusonlyonthedecliningsourcesofjobsandignoretheincreasingsourcesof jobs.Thattraditional,backwardlooking,viewoftheeconomyhastobesupplementedin severalimportantways: i. Weneedtoincludeinourviewofthelocaleconomicbasealleconomicactivities thatdrawincomeintothecommunityfromoutside,regardlessofwhether traditionalexportsoranyphysicalexportsareinvolved.IntheWesternUPthat includes: a.Visitorsincludingtourismandrecreation:
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b.Urbantradecenteractivitiesservingthesurroundingareaincluding professionalandtechnicalservicessuchasmedicalfacilities; c.Universities,colleges,andotherresidentialschools; d.Stateandfederalgovernmentinstitutionsandfacilities.

TheprimarysourcesofjobsintheWesternUPin2010wereinservices,retailtrade andvisitorservices,andgovernment. Inaddition,aswewilldiscussbelow,almostallofthejobgrowthintheWesternUP tookplaceintheservice,retailtrade,andstateandlocalgovernmentsectors,too. Landbasedactivitiessuchasminingandagriculture,incontrast,laidoffworkersby thethousands. ii. TheWesternUPeconomyhasnotstagnatedorfallenintocollapse.Bymost measuresoflocaleconomicvitalityourfivecountystudyareahasdemonstrated considerableeconomicvitality.Overthelastfortyyears,averageincomeper resident(expressedindollarsofconstantpurchasingpower)hasrisen71percent, almostasfastasthenationalgrowthrateandmuchfasterthanthegrowthrate acrossMichigan.Inadditionthetotalincomereceivedbyallresidentstogethergrew 65percentininflationadjustedterms.Jobsexpandedbyathird.Population, however,hasdeclinedby5percentcomparedtowhereitwasfourdecadesago. iii. MuchincomeflowingintotheWesternUPisnottiedtocurrentemploymentinthe laborforce.Thisnonemploymentincomeincludesinvestmentincome(dividends, rent,andinterest)aswellasretirementrelatedpensionprogramsincludingSocial Security,Medicare,othergovernmentpensions,aswellasprivatepension programs.Governmentprogramstosupporthouseholdincomehavealso contributedtoincomeflowsintotheregion,especiallyduringeconomicdownturns. Thesenonemploymentincomeflowswereresponsibleforabilliondollarsflowing intotheWesternUPin2010.Thatincomeflowwasalmostaslargeasalllabor earningsassociatedwithjobsintheregion.Itisaveryimportantsourceofwell beingintheregion. iv. Overhalfofthisnonemploymentincome,about$600millionin2010,was associatedwithretirees.Thismakestheresidentialdecisionsofretiredpersons potentiallyimportanttolocaleconomicvitality. Itisimportanttonotethatmanyoftheseadditionalsourcesoflocaleconomicvitalityinvolve decisionsbypeopleaboutwheretolive,wheretoshop,wheretovisit,orwheretogoto school.Thatis,muchofthiseconomicactivityistiedtothepreferencesofpotentialvisitorsor residents.Forthatreasontheattractivenessofalocalarea,itssocial,cultural,andnatural amenitiesareanimportantpartoftheareaseconomicbaseandanimportantdeterminantof localeconomicvitality.Thatcanbeseenmostclearlyintourismandrecreation,choiceoftrade centerstovisit,choiceofschools,orretirementlocations.Butthereisabroaderforce
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operatingtoowherebothresidentsandpotentialresidentsareheldordrawntoespecially attractivelocationstriggeringasetofeconomicchangesthatstimulatethelocaleconomy.20 Thepublicpolicyimplicationsforlocalcommunitiesseekingtoprotectorenhancetheirlocal economicvitalityareclear.Protectinglocalamenitiesthatcontributetothelocalqualityoflife isimportantinbothretainingcurrentresidentsbutalsoinattractingnewresidentsand businesses.Maintainingandenhancingthenatural,social,andculturalenvironmentshasto playanimportantroleinanylocaleconomicdevelopmentstrategy.Putsomewhatnegatively, communitieshavetobecarefulwhattradeoffstheyembraceastheytrytoexpandtheir economies.Stepsthatunderminelocalqualityoflifecanbeeconomicallycounterproductive.It ispossiblethatthepotentialpubliccostsassociatedwithcertaintypesofindustrial developmentcandamageratherthanimprovelocaleconomicvitality.

Back to table of contents

IV.ThePromisesandRealityofCopperMining

1.ThePromisesofCopperMining
Miningprojectsareoftenpresentedbythemineraldeveloperandperceivedbyresidentsof surroundingcommunitiesasanofferthatistoogoodtorefusebecauseitoffersaccessto neededminerals,theproductionofnewwealth,andhighwagesforlocalworkers.Webegin withadiscussionofthosepositiveeconomicaspectsofminingandthenturntosomeofthe oftenignorednegativeeconomiccharacteristicsofmining. MichigansUpperPeninsulacontainsabroadrangeofmetalores.Ironoreandcopperhave beenminedoveranextendedperiodintheUPandironoreiscurrentlybeingminedin MarquetteCountyattheEmpireandTildenMinesoperatedbyCliffsNaturalResources. KennecottEagleMineralshasbeendevelopinganewcoppernickelminingoperationwestof Marquettethatisscheduledtobeginproductionin2014.IntheWesternUPacoppermining project(Copperwood)hasbeenproposedandjustacrosstheGogebicCountyborderin Wisconsinanewironminehasbeenproposed.Meanwhileexplorationforcopper,nickel, uranium,iron,goldandsilver,andplatinumgroupmetalscontinues.Wewillprimarilyfocuson coppermininginthisreportbecausethoseprojectsappeartobeproceedingtowardactual productionmorequicklythanothers.Manyofthecommentsabouttheeconomicchallengesof copperminingalsoapplytoothertypesofmetalmining. Becausemineralextractioninvolvesremovingvaluablemineralsfromtheearth,acapturingof agiftofnature,itiscommonlyperceivedtoinvolvetheproductionofsubstantialwealth.In bothourhistoryandfolklore,mineralexploration,whensuccessful,hasbeenseenas discoveringsubstantialtreasures.Theminingofmetals,gold,silver,copper,andironprovide
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someofthemostcolorfulexamplesfromourhistoryasonerushofmigratingminersmoved longdistancesfromonenewlydiscoveredmotherlodetoanother,atleasttemporarily denselypopulatingtheareasaroundthemines.ThiscertainlyhasbeentrueintheWesternUP wherecopperwasfoundinnativeform,meaningaspurecoppermetal,notasorethathad tobeprocessedtoextractthecopper.ThiscoppermetalwascollectedbyNativeAmericans andhammeredintotoolsanddecorationsformanymillenniabeforeEuropeansarrived.The copperproductsproducedbyNativeAmericanresidentsoftheKeweenawareaweretraded widelyacrossNorthAmerica.Becausethiscoppercouldbecollectedonornearthesurfaceand couldbetransformedintousefulobjectswithoutchemicaltreatment,theNativeAmerican extractionanduseofcopperdidnothaveasignificantimpactonthenaturalenvironment. EarlyEuropeanAmericansettlementoftheHoughtonKeweenawregionwastiedtothe developmentofthosesamecopperresources. Copperminingandprocessingcangenerateconsiderablewealth.Thecopperminesinthecity ofButte,Montana,werereferredtoastherichesthillonEarthintheearly20thcentury.The StateofMontanaadoptedthetitleoftheTreasureStatebecauseofitsearlyhistoryin mining.ThisstrikeitrichfolkhistoryoftheEuropeansettlementoftheNorthAmericahas coloredourviewofthenationseconomichistoryandhasledtoacommonassociationof almostanyminingprojectwiththeproductionofconsiderablewealth(treasure)thatis expectedtobenefitminingcompanies,workers,andlocalresidents. FigureM.

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Infact,mineralextractionactivitiesdopayamongthehighestwagesavailabletobluecollar workers.AccordingtotheU.S.DepartmentofLabor,in2010,wagesingold,silver,ironand copperoreminingwereinthetoptenpercentofthe1,200separate industriesforwhichweeklyandannualwagesarecalculated.Theaverageannualwageinthese metalminingjobswasinthe$76,000(copper)to$88,000(gold)range.WithinMichigan,the onlymetalminingindustrylistedintheDepartmentofLaboraverageindustrialwagestatistics, ironoremining,wasinthetop3percentofMichiganindustriesintermsofannualwage, paying$97,000peryearin2010.21Metalminingemploymentandearningswereregularly reportedbystateandcountyuntil2000whenthatindustrialcategorywasdroppedbecauseso littleoftheworkforcewasemployedinmetalminingacrossthenation.Between1969and 2000metalmininginMichigan(largelycopperandironminingintheUP)oftenhadaverage annualpayabouttwicetheaveragepayacrosswageandsalaryjobsinMichigan.Forthe1990 2000periodannualpayinMichiganmetalminingwas81percentabovetheaveragepayacross allwageandsalaryjobs.SeeFigureMabove.22TheNationalMiningAssociationreported averageannualpayinAmericanmetalminingin2010asbeing74percentaboveallprivate sectorjobs:$81,300comparedto$46,751.23

2.TheAnomalyofMining:HighPaybutLittleProsperity
Giventhehighwagesassociatedwithmining,onewouldexpectcommunitiesthatrelyon miningtobeunusuallyprosperous.That,ingeneral,isnotthecase.AcrosstheUnitedStates miningcommunities,instead,arenotedforhighlevelsofunemployment,slowratesofgrowth ofincomeandemployment,highpovertyrates,andstagnantordecliningpopulations.Infact, ourhistoricminingregionshavebecomesynonymouswithpersistentpoverty,notprosperity: Appalachia(coal),theOzarks(lead),theFourCorners(coal),andtheUpperPeninsulaof Michigan(copperandiron)arethemostprominentofthese.24Federaleffortshavefocused considerableresourcesonovercomingthepovertyandunemploymentfoundinthesehistoric miningdistricts.Inaddition,thecoppertownsofArizona,NewMexico,Montana,andMichigan
BureauofLaborStatistics,QuarterlyCensusofEmploymentandWages, http://www.careerinfonet.org/industry/ind_highest_paying.aspx?id=&nodeid=49&stfips=00&from=highest 22 MostofoureconomicdataforthecountiesintheWesternUPcomefromtheRegionalEconomicInformation System(REIS)maintainedbytheBureauofEconomicAnalysiswhichislocatedintheU.S.Departmentof Commerce.http://www.bea.gov/regional/index.htmIfaspecificcitationtosomeothersourceisnotprovided, thecountyleveldatacomesfromtheBEAREIS. 23 EconomicContributionofU.S.Miningin2010,September2012,p.16. www.nma.org/pdf/economic_contributions.pdf. 24 OutsideoftheruralUSDeepSouthwherealonghistoryofracialinequalityhasledtopersistentpoverty,mining andothernaturalresourcecountiesareprominentamongthepersistentlypoornonmetropolitancounties. MiningtheData:AnalyzingtheEconomicImplicationsofMiningforNonmetropolitanRegions,WilliamR. FreudenburgandLisaJ.Wilson,SociologicalInquiry,72(4),Fall2002.AlsotheRevisedERSCountyTypology:An Overview,1994,PeggyJ.CookandKarenL.Mizer,EconomicResearchService,RuralDevelopmentResearch ReportNumber89,U.S.DepartmentofAgriculture.Comparetheminingcountieswiththepersistentpoverty counties,pp.8and24.
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andtheIronRangeinMinnesota,theSilverValleyofIdaho,thegoldminingtownsofLeadand Deadwood,SouthDakota,theUraniumCapitalofthenationintheGrantsareaofNew MexicoandtheUravanBeltinwesternColorado,etc.arealsonotprosperous,vital communities.Overthelastseveraldecadessomeoftheseareashavebeguntorecovereither asaresultofhundredsofmillionsofdollarsofSuperFundexpenditureand/orasaresultofthe inmigrationofnew,relativelyfootlooseresidentsandeconomicactivities,butthatrecoveryis usuallynottiedtoongoingmining. Thedramaticcontrastbetweenthewealthcreatedandthehighwagespaidinminingandthe pooreconomicperformanceofminingcommunitiesneedstobeunderstoodbeforeexpanded mineralextractionactivitiescanbesafelypromotedasalocaleconomicdevelopmentstrategy. Belowwetakeabrieflookattheactualperformanceofmineralcommunitiesoverthelast thirtyyearsandthenturntoanexplanationforthatrelativelypooreconomicperformance. InordertoexplorethelocalimpactofrelianceonminingintheUnitedStatesoverthelast threedecades,welookattheeconomicperformanceofallUScountieswheremining (excludingoilandgasextraction)wasthesourceof20percentormoreoflaborearningsat sometimeinthe1980s.Thereareabout100suchcountiesthatcouldbeidentifiedoutofthe 3,100countiesintheUS.25Datadisclosureproblemspreventedtheidentificationofsome minedependentcounties.26AppendixCliststhosecounties. TheUSminingdependentcountiesarespreadoutoverhalfoftheAmericanstatesbutare geographicallyclusteredintheAppalachian(Pennsylvania,WestVirginia,Tennessee,Kentucky, andVirginia)andMountainWeststates.ThecenturyoldcopperminesofArizona,NewMexico, Montana,Utah,andUpperMichiganareincludedasarethenewgoldminesinNevada.The oldercoalminesinthesouthernregionsoftheGreatLakesstates(Illinois,Indiana,andOhio) areincludedasarethenewopenpitcoalminesofWyoming,Montana,Utah,Colorado,and NewMexico.TheleadminesoftheOzarksinMissouri,thepreciousmetalminesintheBlack

TheRegionalEconomicInformationSystem19692000CDROM(BureauofEconomicAnalysis,USDepartment ofCommerce)wasthesourceofthedata.Acountywasincludedasminingdependentifthedataindicatedthat foratleastoneyearinthe19801989periodmininglessoilandgasearningswere20percentormoreoftotal earningsbyplaceofwork. 26 Ifafewfirmsdominatedlocalmining,federalregulationspreventthereleaseoftheminingdataforthatcounty. Thisisoftenaprobleminanygivenyear,butitislessofaproblemwhenlookingat20yearsofdatasincemining dataoftenwillbeavailableforatleastoneofthoseyearsandthusqualifyitasminingdependent.Thenumber ofcountiesthatwouldhavebeenlabeledminingdependentifitwerenotforthesedatadisclosurerestrictionsis unknown.However,ouranalysisidentifiedaboutthesamenumberofminingdependentcountiesasother studies,about100countiesdependentonsolidmineralsandanotherhundreddependentonoilandgas extraction.KennethDeaversandDavidBrownina1985studyidentifiedatotalof199countiesinthesetwo categories(NaturalResourceDependence,RuralDevelopment,andRuralPoverty,EconomicResearchService,US DepartmentofAgriculture.RuralDevelopmentResearchReportNo.48).A1994studyidentifiedonly146mining dependentcounties(includingoilandgascounties)(PeggyCookandKarenMizer,TheRevisedERSCounty Typology,EconomicResearchService,RuralDevelopmentResearchReportNumber89,USDepartmentof Agriculture).
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HillsofSouthDakotaandtheSilverValleyofIdaho,andtheironfieldsofMinnesotaandUpper Michiganarealsoincluded. Thequestionweseektoansweriswhetherthishighdegreeofrelianceonminingallowed thesecountiestooutperformcountiesthatdidnotspecializeinmining.Economic performancewasmeasuredintermsofthegrowthinthetotalincomereceivedbyresidents, theaggregatelaborearningsofresidentsofthecounty,percapitaincome,andpopulation.In addition,thelevelofpercapitaincomeatthebeginningandendoftheperiodswasanalyzed. Wejudgetherelativeeconomicperformanceofspecializedminingcommunitiesbycomparing themtocountiesthatdidnotspecializeinmining.Wesimplyformaratioofthegrowthinthe miningcountiesandthegrowthinthenonminingcounties.Ifthisratio,say,is0.50,itmeans thatthegrowthintheminingcountieswasonlyhalfthatofthegrowthinnonminingcounties. Thedecadeofthe1980swasnotgoodforminingdependentcounties.Aggregatelabor earningsinthosecountiesgrewmuchmoreslowlythaninothercounties,almost60percent slower.Duringthe1990searningswerestillgrowingmoreslowlyinminingdependent counties,25to30percentslower.Inthe20012008period27,however,risingmetalandcoal pricesledtoarecoveryofsomeminingcountiesafter20yearsofdepressedeconomicvitality. Duringthatperiod,althoughminingcountiessawmuchslowerpopulationgrowth,theearnings andpercapitaincomeoftheresidentsofminingcountiesgrewfasterthaninothercountiesfor thefirsttimein20years.Percapitaincomeandresidentslaborearningsgrew13percent fasterinminingdependentcountieswhiletotalincomegrew9percentfaster.Forthewhole period19802008,despitetheresurgenceofminingactivityinthemostrecentperiod, however,aggregateearningsandpercapitaincomestillgrewsignificantlymoreslowly.Mining dependentcountyearningsgrewoverathirdslower,personalincomealmostaquarterslower, andpopulationandpercapitaincomeaboutaneighthslower. GiventhispooreconomicperformanceinUSminingdependentcountiesdespitethehigh wagespaidbymining,itisnotsurprisingtofindthatpopulationgrowthinthesecountieswas negativeduringthe1980sandsignificantlyslowerthanintherestofthenationinthe1990s. Populationgrowthcontinuestobesignificantlyslowerduringthe20012008periodtoo.See TableCbelow.

In2001theU.S.DepartmentofCommerceshiftedisindustrialcategoriesfromtheStandardIndustrial ClassificationtotheNorthAmericanIndustrialClassification.Insteadofreportingontotalminingandthesub categoriesofmetalmining,coalmining,oilandgas,andothermining,itreportedonlyonthesubcategoriesofoil andgasextractionandminingexceptoilandgas.The2000and2001datacannotbedirectlycompared,hence ouruseofthe20012008period.Forthe1980to2000periodweapproximatedtheminingexceptoilandgasby subtractingoilandgasfromtotalmining.

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 Thislossofpopulationfromminingareaswhenminesshutdownoraslonglivedminesadopt labordisplacingtechnologiesisnotsurprising.Afterall,theculturalartifactsofpastmining areas,theghosttown,havebeenanimportantpartofourhistory. Despitethehighwagespaidinmining,thelevel(asopposedtothegrowthrate)ofpercapita incomewasalsolowerintheminingdependentcountiesand,giventheslowergrowth,thegap increasedrelativetotherestofthenationbetween1980and2000.Thegapgrewto$9,500per personby2000.In2008therewasstillagapinpercapitaincomesintheminingcounties,but thegaphadnarrowedto$3,000.28SeeTableDbelow.

TableD. Level of Per Capita Income: Mining Dependent and Non-Mining Dependent Counties
1980 Mining-Dependent Non-Mining Dependent $8,390 $10,201 1990 $13,754 $19,622 2000 $20,099 $29,548 2008 $30,240 $33,191 -$2,951

TableC. Ratios of Growth in Economic Vitality Indicators Growth in Mining Dependent/Growth in Non-Mining Dependent 1980-1990 1990-2000 2001-2008 1980-2008 Personal Income 0.59 0.82 1.09 0.76 Population -0.85 0.50 0.65 0.87 Per Capita Income 0.72 0.95 1.13 0.88 Earnings 0.41 0.69 1.13 0.64 Source: US Dept. Comm., BEA, REIS Local Area Income

ArecentstudyofallU.S.nonmetropolitancountiesintheyears20002007confirmedour resultsfromtheearlierperiods.Itfoundthatincreaseddependenceonminingwasassociated withslowerpopulationgrowthinthe2000to2007period.29Italsofoundthatincreased relianceonmininghadnopositiveimpactonemploymentgrowth.Ontheotherhand,the

Mostminingoperationsarelocatedinnonmetropolitanareaswhereaverageincomes,ingeneral,arelower.If theminingdependentcountiesarecomparedonlytoothernonmetropolitanareasasopposedtoallcounties, bothmetropolitanandnonmetropolitan,itisstilltruethattheminingdependentcountieshavelowerpercapita incomesandthattheylostgroundrelativetoothernonmetropolitancountiesduringthe19802000period.Thisis alsotrueformostminingregionseveniftheminingdependentcountiesarecomparedonlywiththeothernon metropolitancountieswithinthesamestate.Ofthe24stateswithminingdependentcounties,onlyfive(MT,MN, MI,GA,andSD)hadpercapitaincomesabovethestatesnonmetropolitanaveragein1990andpercapita incomesintheminingcommunitieswithinthosefivestateswereonly4to9percenthigher.In2000thepercapita incomesofminingdependentcountiesexceededthatofthestatesnonmetroareasinonlythreestates.In2008, despitetheexpansionofmining,17oftheminingstatesstillhadnonmetropercapitaincomeabovethatinthe miningdependentcounties.Theaveragepercapitaincomeintheminingdependentcountiesremainedbelowthe percapitaincomeinthenonmetropolitanareasfor1970,1990,2000,and2008.In1980thepercapitaincomein miningdependentcountieswas5percentabovethenationalnonmetropolitanpercapitaincome. 29 Miningexceptoilandgasdevelopmentwastheindustrialclassification.Thatincludesmetal,coal,sandand gravel,andothernonmetallicmineralmining.
28

Difference -$1,811 -$5,868 -$9,449 Source: US Dept. Comm., BEA, REIS Local Area Income, and author's calculations.

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morereliantaruralcountywasonmininginthe20002007period,thehigherwasthegrowth rateinpercapitaincomeinthatperiod.30 Itisclearthatoverthelastseveraldecades,dependenceonminingdidnotprovideareliable pathtoprosperitythatallowedminingcommunitiestoperformbetterthanotherAmerican communities.Infact,miningdependentcommunitieslaggedsignificantlybehindtheaverage fortherestofthenation. Thesearenotnewresults.USDepartmentofAgricultureanalysesofminingdependent countieshavealsopointedouttheslowereconomicgrowthandlowerpercapitaincomesin miningdependentcounties.31InadditionrecentreportsbytheUSCensusBureauproviding ProfilesofPoorCountiesshowed,whencountiesareclassifiedbythetypeofindustrythat dominatesthelocalarea,miningcountieshadthehighestpovertyratesofanyindustrialgroup andthatpovertyrateincreasedsystematicallybetween1989and1996.32 UnemploymentisalsohigherinminingdependentcountiesintheUS.Forinstance, unemploymentratesincoalminingcounties33aresignificantlyabovetheaverage unemploymentrateinthestatewherethecountyislocated.Averagedoverthe19902000 periodandacrossallcoalminingcounties,theunemploymentrateinthosecountieswas55 percentabovethestateaveragerates.ForsomestatessuchasArizonaandVirginia,thecoal countyunemploymentratesaretwotothreetimeshigherthanthestateunemploymentrates. SeeTableEbelow.Giventheongoingjoblossesinmostcoalminingcountiesduelargelyto labordisplacingtechnologicalchange,thesehighunemploymentratesmightbeexpected. Duringthe1980s,forinstance,thelayoffrateintheminingindustrywasthehighestofallthe majorindustrialgroupsintheUSandtherateofjobdisplacementincoalminingwasmuch higherthaninminingasawhole.34
Deller,StevenC.andAndrewSchreiber.2012.MiningandCommunityEconomicGrowth,TheReviewof RegionalStudies,42(2):121141.Miningincludedallmineralextractionexceptforoilandgasexplorationand development.Thusitincludednotonlymetalminingbutalsocoalmining,sand,gravel,androckproduction,and othermineralproductionsuchasphosphate,limestone,etc. 31 Seethestudiescitedinfootnote22above. 32 ProfilesofPoorCounties:SomeEmpiricalEvidence,PatrickCardiff,USCensusBureau,SmallAreaIncomeand PovertyEstimates,FB31065,Washington,DC20233,1999. http://www.census.gov/hhes/www/saipe/asapaper/Cardiff99.pdf 33 AUScountywascategorizedasbeingacoalminingcountyifithad200ormorecoalminersinitsworkforce. Therewere99suchcountiesoutofAmericas3,100counties.TheRegionalEconomicInformationSystem(US BureauofEconomicAnalysis)wasthesourceoftheemploymentdata;USDepartmentofLaborthesourceofthe unemploymentdatafortheyeas19902000. 34 TheIndustrialstructureofjobdisplacement,197988,MonthlyLaborReview,September1992,pp.1725.
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TableE.

AL 1.05 OH 1.75

Ratio of the Unemployment Rates in US Coal Counties to the Statewide Average Unemployment Rate, 1990-2000 AZ CO IL IN KY MT NM 2.64 1.31 1.50 1.38 1.64 1.76 1.38 PA 1.44 TX 1.23 UT 1.73 VA 2.95 WV 1.27 WY 1.02

ND 1.82

All US Coal Counties

1.55

Source: US Department of Labor; author's calculations

Theimportantpointtobedrawnfromallofthesestatisticalresultsisthatthesemining activities,ingeneral,havenottriggeredsustainedgrowthanddevelopmentinthelocalregions weretheminingtookplace.Closureofminesinthelate19thandthefirsthalfofthe20th centuriesoftenledtoghosttownsandabandonmentofaminingregion.Wheremining persistedoverlongerperiods,itdidnottriggeradiversificationoftheeconomy.Instead,as laborsavingtechnologiesreducedemploymentopportunities,theregionaroundthemines becamedistressedwithhighunemploymentandpovertyrates.35Asminingagainbeganto expandinthe20012008period,countiesthatdependedonminingmadeupsomeofthe lossesovertheprevioustwentyyears,butstilllaggedbehindothercountiesthatwerenot miningdependentandremainedvulnerabletodownturnsinthemineraleconomysuchas happenedin2009andalmostcertainlywilltakeplaceagain

3.ExplanationsforthePoorEconomicPerformanceofMiningCommunities
Therearefiveimportantexplanationsforthepooreconomicperformanceofmining communitiesdespitethehighwagespaidinthoseindustries: Theinstabilityofmineproduction,employment,andpayroll. Theimpactofongoinglabordisplacingtechnologicalchangethatconstantly reducestheworkforcerequiresforanygivenlevelofmineproduction. Mineemployeesareverymobile,commutinglongdistancetoworkwhile maintainingtheirresidencesoutsideoftheareaimmediatelyimpactedbythe miningandmilling.Thisleadsmuchoftheminingpayrolltoleakoutofthe regionimmediatelyaroundthemine. Mines,ultimately,alwaysdepletetheireconomicallyviableoredepositsand shutdown.Theaveragelifeofametalminehasdeclinedsignificantlyinrecent decades.Forinstance,thecopperminingactivitiesinButte,Montana,have
A2002reviewoftheliteraturedealingwiththeeconomiccharacteristicsofminingdependentrural communitiesintheUSconfirmstheseresults.Ofthe301quantitativeeconomicfindingsinscholarlystudiesabout howminingdependentcommunitiesfaredrelativetoothercommunities,therewerealmosttwo(1.9)negative impactsreportedforeverypositivefinding.SeeMiningtheData:AnalyzingtheEconomicImplicationsofMining forNonmetropolitanRegions,WilliamR.FreudenburgandLisaJ.Wilson,SociologicalInquiry72(4):54975. Ruralisusedlooselyheretorefertononmetropolitanareasthatcanhaveurbanareaswithpopulationsofupto 50,000.
35

35

lasted125years,albeit,employingadrasticallyreducedworkforce.TheWhite Pinemineoperatedforalmost45years.ButtheproposedCopperwoodproject isestimatedtolast13years. Miningislandintensiveandasaresultcanhavenearlypermanentimpactson thenaturalenvironment.Environmentaldegradationcansignificantlyreducethe attractivenessofaminingareaasaplacetolive,work,andraiseafamily. Wediscusseachoftheseinturnbelow. A.RidingtheNaturalResourceEconomicRollerCoaster:CopperMiningintheWestern UP Oneimportantexplanationforthispooreconomicperformanceoflocaleconomiesspecializing inminingdespitetheveryhighwagecharacteristicsofthatindustryistheinstabilityof employmentandincomeassociatedwithmineraldevelopmentactivity.Theexperienceofthe MichiganUPingeneralanditswesternregioninparticularwithcopperandironmining dramatizesthis. TheWesternUPhashadoveracenturyandahalfofeconomichistorywithcoppermining, concentrating,smelting,andrefining.Alittlemorethanacenturyaftercopperwasfirstmined byEuropeanAmericansin1848ontheKeweenawPeninsula,themodernWhitePineMine complexinOntonagonCountywasopenedintheearly1950stosupporttheU.S.wareffortin Korea.UltimatelytheWhitePinecopperfacilitiesincludednotonlytheminebutprocessing plantstoconcentratetheore,smeltit,andrefineit.TheTownofWhitePinewasalsobuiltto providehousingandservicestheneededworkforce. BythetimethemodernWhitePinecoppercomplexbegantobedevelopedin1953toprocess thelocalsulfidecopperores,mostofthepreviouscopperminingactivitiesintheWesternUP hadshutdown.Thatearliercopperminingactivityfocusedonthenativecopper,copperin metallicform,ratherthanminingchemicalcompoundssuchascoppersulfideandcopperoxide fromwhichthecopperhadtobeextractedbyvariousindustrialprocesses. Overa20yearperiodtheWhitePineMinecomplexexpandeditsproduction,processing,and employment.Employmentreachedapeakofabout3,000in1974andthenplungedbyalmost 2,000jobsoverthefollowingfiveyears.By1984mostoftheWhitePinecoppercomplexhad beenshutdownandonly270employeesworkedthere.Abriefrecoverybroughtemployment upto1,100between1989and1995butthenemploymentplungedtoonlyabout100.Seethe FigureNbelow.
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FigureN.

InitiallyastheWhitePineMinecomplexwasexpanding,ironminingactivitiesintheUPwere contracting.WhenWhitePinebegantolayoffworkers,ironminingintheUPwasexpanding again,temporarily,andthisoffsetsomeofthelossesofcopperjobs.Thehappenstanceofthese offsettingmovementsincopperandironminingemploymentopportunitieshelpedstabilize metalminingemploymentintheUPbetween1960and1980.By1979bothironandcopper jobswereinsteepdeclineandtotalmetalminingemploymentdroppedsteeply.By19854,650 metalminingjobshadbeenlost.By2005,therewereonlyabout1,000metalminingand processingjobsleftintheUP.SeeFigureObelow.

37

FigureO.

Ingeneralmetaloreminingandprocessingfollowsinternationalmetalpricesupanddown.The WhitePineMinewasbuilttoserveawartimedemandforcopper.Notonlywasthepriceof copperhighintheearly1950sbutthefederalgovernmententeredintocontractual arrangementtoassureamarketforthenewcoppermineandprocessingcomplex.Ascopper pricesreachedrecordhighsintheearly1970ssodidemploymentattheWhitePineMine complex.Asthosepricestumbledunstablydownwardbetween1975and1985,theWhitePine Minecomplexlaidoffalmostitsentireworkforce.Thebriefrecoveryofminingactivitiesatthe WhitePineMinecomplexinthelate1980swasalsotiedtoatemporaryrecoveryofcopper prices.SeeFigurePbelow. ThesefluctuationsinmetalminingjobsintheUPduringthelasthalfcenturywerenotunusual fromanationalperspective.Asnationalandworlddemandformetalcommodities,likecopper, fluctuate,metalpricesandtheprofitabilityofmetalminesandmillsfluctuatetoo.Thatleadsto mineandmilllayoffsorshutdowns.Thishasbeentrueforcopperminingthroughoutthe twentiethcenturyandintothecurrentcenturydespitealongtermtrendofproducingmore andmorecopper.FigureQshowsthefluctuationsinAmericancopperproductionfrom1900 through2010.Totalproductionregularlytumblesbyaquarterorathird,leadingto proportionallayoffsandperiodicallyfallsby50to75percentasminesandmillscompletely shutdown.
38

FigureP.

FigureQ.

39

ThecollapseinAmericancopperproductionfromorebetween1998and2010,whenprimary copperproductionwascutinhalf,makesitclearthatfluctuationsincopperproductionand employmentarenotjustaproblemofthepast.Anindicationofthepotentialforsuch instabilityinmineemploymentisprovidedbytheCopperwoodProjectthathasbeenproposed inGogebicCountyabout20milessouthwestoftheoldWhitePineminelocationalongthe southernshoreofLakeSuperior. TheCopperwoodProjectFeasibilityStudy36emphasizedthatthefinancialviabilityoftheproject dependsonthepriceofcopper:Thetablesshowthattheprojectishighlyleveragedtocopper price.(p.10)Thesuccessoftheprojectwillbehighlydependentonthecopperprice(p. 11).Themajorprojectrisk,asdemonstratedbythefinancialanalysis,istherealizationpriceof copperandsilvermetal(p.258)TheStudyalsoshowsthattheinternalrateofreturngoesto zeroifthepriceofcopperfallsmorethan10percentbelowthebasecaseassumptionof$2.75 perpound,i.e.tobelow$2.50perpound.(Figure22.1)Ifthecopperpriceisbelowthatlevel, theinternalrateofreturnisnegative,noreturnisearnedontheinvestmentandthe investmentcannotbefullyrecovered. Copperwoodanalystshavesaidthattheminingprojectwillbeviableaslongascopperprices remainabove$2.50perpound.Onecanlookbackacrossthehistoryofcopperpricesinthe U.S.toseehowoftenprices,withtheeffectsofinflationremoved,havebeenatorabovethis Copperwoodtargetlevel Forlonghistoricalperiodsrealcopperpriceshavebeenbelowthatlevel:for32yearsfrom 1920to1952andfor24yearsfrom1981to2005.For56ofthe112years,halfofthetimefor whichwehavedata,thepriceofcopperwasbelowthelevelnecessaryforCopperwoodtobe financiallyfeasible.SeeFigureRbelow. Copperprices,likemostinternationallytradedrawmaterialpricesvarywithmarketconditions, i.e.pricesfluctuateassupplyanddemandconditionsaroundtheworldfluctuate.Whenprices arelow,minescutbackonproductionattheirmostcostlyunits.Asthesupplyofcopperfalls, ultimatelysupplyanddemandcomeintobalanceandpricesstabilize.Butoftenthecutbacksin productionovershootwhatisnecessaryandpricesstarttorise.Ifpricesriseenoughboth existingmineswhereproductionhasbeenreducedaswellasnewknowndepositscanmove intoproduction.Theincreasedsupplycanalsoovershootthedemand,stabilizingandthen drivingcopperpricesbackdownagain.Thiscanbeseeninthecopperpricesoverthelast centuryinFigureRbelow.Notetheregulardeclinesincopperpricesofasmuchas70percent

FeasibilityStudyoftheCopperwoodProject,UpperPeninsula,Michigan,USA,preparedbyJosephM.Keane, etal.forOrvanaResourcesUSCorporation.March21,2012.Thatfeasibilityanalysisisfromapreoperationpoint ofview.I.e.fortheminetobefeasibleitmustprovideareturnofandreturnonthecapitalinvestmentinbuilding themineandmill.Itisnotabreakevenoperationalanalysiswhereoneaskswhetherthevalueofthemetal beingproducedmorethancoversthevariablecostofoperation.Inthattypeofanalysisfixedcostssuchasa returnoncapitalinvestment,depreciation,interestcosts,propertytaxes,etc.wouldbeignored.

36

40

withregulardeclinesof40percentormore.Suchpricedeclinescanleadminingcompaniesto shutdowntheirmorecostlyoperationsorceaseproductioncompletely.
FigureR.

Source:USGSCopperStatistics

Aswillbediscussedindetailbelow,theseperiodicboomsandbustsincopperproductionand employmenthavedisruptiveimpactsonthecommunitiesinthevicinityofthecoppermines thatpreventthehighwagesassociatedwithcopperminingfromhavingareliablepositive impactonlocaleconomicvitalityandstability. B.TheImpactofTechnologicalChangeonCopperMiningEmployment Technologicalchangeisconstantlyreducingthenumberofjobsassociatedwithanygivenlevel ofcopperproduction.ThereisnotadataseriesforMichiganshowinghowlaborproductivityin copperminingvariedovertime.SuchdataisavailableforArizona,astatethathasalong historyincoppermining.InArizonascopperindustry,copperoutputperworkerhasincreased fivefoldsince1974.Puttheotherwayaround,thelaborrequirementstoproduceaunitof copperhavebeencuttoafifthofwhattheywerein1974,from35workersper1,000tonsof copperproducedtojust7workers.OfcoursecopperemploymentinArizonaplummetedtoo.

41

SeeFigureSbelow.37Butthedeclineinemploymentbetween1974and1997of15,000copper miningjobstookplacewhenArizonacopperproductionwasincreasing.Itwastechnological changeincopperminingthatwaseliminatingthemajorityofthejobs,evenduringaperiodof boomingcopperproduction.Ofcourse,thereisnoreasontobelievethattechnologicalchange hascometoapermanenthaltandthatgoingforwardtechnologywillnolongerdisplacepartof theworkforce.

FigureS.

Declining Labor Intensity and Employment In Arizona Copper Industry

30,000 40

1974: 28,000 Jobs

2003: 5,900 jobs

35

25,000

Employment in the Copper Industry

30 20,000 25

15,000

20

15 10,000 10 5,000

Workers per Thousand Tons of Copper Produced

5

1974: 35 workers per 1,000 Tons

1972 1977 1982 1987 1992

2003: 7 Workers per 1,000 T

1997 2002 2007

Labor Intensity of AZ Copper Production: Jobs per Thousand Tons

Employment in AZ Copper Industrty

Thispatternofcopperminingjoblosesdespiteexpandedcopperproductionwasnotuniqueto Arizonaortocopper.Between1987and2004laborrequirementsperunitofmetalproduced fellby55percentacrossallmetalmining.Thatis,inaseventeenyeartimeperiod,thelabor forceneededtomineanygivenquantityofmetalorewasmorethancutinhalf.SeeFigureT.

DatafromtheArizonaDepartmentofMiningandMineralResourcesandfromtheWesternEconomicAnalysis CenterannualreportsonTheEconomicImpactoftheArizonaCopperIndustry,GeorgeF.Leaming.
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42

FigureT.

Thislabordisplacingtechnologicalchangehashelpedcopperminingcompaniescontrolcosts andremaincompetitivewhileprocessinglowerandlowergradeores.Thehigherlabor productivityalsosupportsthehighwagespaid.Thedownsideofthisgrowthinlabor productivityforworkersandcommunitiesisthatthelaborrequiredperunitofproductionhas continuedtofall,reducingthenumberofjobsassociatedwiththeindustry.Thusevenif productionisstable,employmentcontinuouslyfalls.Onlyconstantlyexpandingmineral developmentcanmaintainstableemployment,andthisisrarelypossibleoverthelongrunin anyparticulararea.Atinypartoftheimpactofdecliningemploymentinthecopperindustry hasbeenoffsetbyrisingwagesfortheremainingworkers:WhilemetalminingjobsinMichigan fell72percent,metalminingpayrolldeclinedonly68percent. C.TheMobilityofMinersandIncomeLeakageoutoftheMiningArea Mostemployeesofminesusuallydonotliveadjacenttothemines.Thisisrationalbehavior sinceminersknowthatminingemploymentiscyclicalandminingcreatesenvironmental hazardsandtendstoscarthelandscapeinapermanentway.Toprotecttheinvestmentthey havemadeinthevalueoftheirhomes,minerstendtolocatethosehomesatsomedistance fromtheimmediateimpactareaofthemine. Forinstance,in1991WhitePineMinepayrollrecordsindicatedthatlessthanoneinfiveofthe WhitePineemployeeslivedinthecommunityofWhitePineitself.82percentoftheWhitePine workforcelivedoutsideofthetown.Thatisonereasonthatonecannotanalyzemineimpacts intermsoftheirimpactonthetownwherethemineislocated.Thoseminingtownsarerarely
43

relativelycompleteintegratedeconomiesbythemselves.WhitePineemployeeslivedasfaras northernHoughtonCounty,83milesfromWhitePine.TenpercentofWhitePineworkerslived inHoughtonCounty.OtherslivedacrosstheborderinWisconsin.Forinstance,sixpercentof theworkforcelivedinIronCounty,WI,somefiftymilesfromWhitePine.Aboutathirdofthe workforcelivedinvariousGogebicCountycommunities,30to40milesfromWhitePine.About 30percentoftheworkforcelivedinOntonagonCountycommunitiesotherthanWhitePine. Thus,alittlelessthanhalfoftheWhitePineworkforceactuallylivedinOntonagonCounty.38 Alittlelessthanadecadelater,2000CensusdataindicatedthatworkersintheWesternUP werestillquitemobile,commutingtothemostattractivejobswithinareasonabledistance.In 2000ineachofthecountiesinourWesternUPstudyarea(Keweenaw,Houghton,Baraga, Ontonagon,andGogebicCounties)hadasignificantnumberofworkerswholivedinthat countybutdidnotworkinthatcountyandcommutedouttoajobelsewhere.Atthesame time,workerslivinginothercountieslefttheircountyofresidenceandcommutedintothat countytowork.Combinethosecommutingoutofacountywiththosecommutingintothe samecountytowork,andonaverage,theequivalentofalmostathird(30.7percent)ofthe residentworkersareeithercommutinginorouttowork.39SeeTableF.
TableF. TheMobilityofWorkersintheWesternUpper PeninsulaofMichigan,2000. In Out County Commuting Commuting NetOut Numberof Percentof Workersto Workersfrom Workers the the Commuting Residing Workers County County fromCounty intheCounty Commuting Baraga 870 421 449 3,440 38% Gogebic 1,326 1,398 72 6,590 41% Houghton 1,237 1,953 716 14,918 21% Keweenaw 179 548 369 894 81% Ontonagon 215 742 527 3,090 31% TotalCommuting 3,827 5,062 1,235 TotalResidentWorkers 28,932 28,932 28,932 28,932 %ofTotalResident Workers 13.2% 17.5% 4.3% 30.7% U.S.CensusBureau,2000,CountytoCountyWorkerFlow

RidingtheResourceRollerCoaster:AComparisonofSocioeconomicWellBeinginTwoMidwesternMetalMining Communities,LisaJ.Wilson,pp.133134,UniversityofWisconsinPh.D.dissertation,2001. 39 The2010Censusdidnotcollectworkerflowdata.HowevertheAmericanCommunitySurveyconductedbythe U.S.CensusBureaudidcollectdataonworkersworkingoutsidetheircountyofresidenceforthecombinedyears 20062010.ThatdatasuggestmuchloweroutcommutingfromGogebicandHoughtoncounties(2.8and7.3 percent,respective,ratherthanthe21and13percentimpliedbythetableabove.Fortheothercountiestheout commutingwassimilartothetableabove.TheAmericanCommunitySurveydatadoesnotprovidedataonin commutingbycounty.ACSTableS0801CommutingCharacteristicsbySex.Notethatwearenotassertingthata thirdoftheresidentsofallthesecountieswereeithercommutinginorcommutingout.Wearecomparingthesum oftheinandoutcommutingassociatedwitheachcountytothenumberofresidentworkers.Ofcourseone countysincommutersareanothercountysoutcommuters.Sofortheregiontakenasawholethisstatisticover statesthelevelofcommuting.
38

44

Becauseofthisworkermobilityandavoidanceofminingtownsbyminers,theimpactofa newmineonthelocalareaimmediatelyaroundtheminewillbemuchsmallerthanthe employmentandpayrollassociatedwiththeminesuggests.Thatpayrollwillnotflowprimarily tolocalresidents.Muchofitwillimmediatelyleakoutofthelocaleconomytothetownsand countieswherethemanyincommutingmineworkersactuallylive.Thatcanbeseenduringthe expansionandcontractionoftheWhitePineminecomplex.Becausemanyoftheworkersdid notliveinOntonagonCounty,partoftheWhitePinepayrollwaspaidtononresidentswho lived30to50milesormoreaway.Thatleakageofpayrolloutofthecountywherethejobs areintothecountieswheremanyoftheworkersresidecanbeseeninfederaleconomic statisticsthatmakearesidenceadjustmentwhencalculatingtheactualincomebeing receivedbyresidentsofacounty.Theincomebeingearnedinacountywherethereisalarge industrialfacilityhastobereducedtoreflectonlythepartofthepayrollgoingtolocal residents.Inturn,asignificantpartofthepayrollthatwasearnedinthatcountyhastobe assignedtothecountiesofresidenceofthedifferentworkers.Thatpartofthepayrolldoesnot benefitthelocaleconomybutbecomesasourceofincomeactuallyflowingintothoseother communities,someatarelativelylongdistancefromtheminelocation. FigureU.

FigureUaboveshowstheseincomeflowsoutofOntonagonCountyintotheadjacentcounties ofGogebic,Houghton,andBaraga.Notethatonelineisnearlythemirrorimageoftheother.

45

Alsonotethesizeoftheincomeflowatitspeak.TheflowoutofOntonagonCountywas$90 millionayear.Aflowalmostaslargeflowedintothethreeadjacentcounties.WhentheWhite PineMinecomplexwasoperatingatfullcapacity,thisrepresentedalmost50percentofthe WhitePinepayrollleakingoutofOntonagonCountytothesurroundingareaofMichiganand Wisconsin.Inlateryearsasemploymentdeclined,theleakageassociatedwithmineworkers commutingintoworkinWhitePinewasintherangeof30to40percentoftheminecomplex payroll.Afterthemineshutdown,workerswerenolongercommutingintoOntonagonCounty and,instead,workersinOntonagonCountycommutedouttofindjobs. Thismobilityofworkersshouldalsobekeptinmindwhenthinkingabouttheimpactofa copperminingprojectontheclosesttown.Typically,ifthemineandmillwillemploy200 workers,itwillbesaidthat200newjobswillbecreatedforresidentsofthetown.Butpeople wholiveinatownoftendonotworkinthattownandthosethatworkinthattownoftendo notlivethere.Inaddition,howmuchofresidentsorworkersincomeactuallygetsspentin thattownislargelydeterminedbywhetherthattownisaregionaltradecenterorlargelyjusta residentiallocation. Censusdataonourfivecountystudyareafor20062010indicatethatofthepeoplelivinginan identifiedtownorcity,themajorityworkedoutsideofthattownorcity.InKeweenawCounty almostthreequartersworkedoutsideoftheplacewheretheylived.InGogebic62percent workedoutsideofthetowninwhichtheylivedandalmost20percentworkedacrossthestate lineinWisconsin.ForHoughtonandBaragaCountiesabout50percentworkedawayfrom wheretheylived.ForOntonagonathirdworkedoutsideofthetownwheretheylived.40 Whenrelativelyhighpaidjobsarecreated,allresidentswithincommutingdistancecanbe expectedtocompeteforthejobsandthenewbusinessislikelytohirethemostqualifiedof thosewhoapply.Asaresult,thejobswilloftengotopeoplewhocommuteintoworkthere. Thismeansthattheeconomicbenefitsoftheminingandmillingbecomerelativelywidely dispersedthroughouttheregionanddonotprimarilyflowtolocalresidents.Thispartially explainswhyminingtownsoftenarenotasprosperousasthehighwagesandpayrollwould suggest.Thismobilityofworkersandthedispersionoftheimpacttoabroadergeographicarea includingtheclosesttradecentersarealsowhywehavedefinedafivecountystudyareain whichmostoftheimpactsarelikelytobefelt. D.DepletionofMineralDeposits Anothersourceofdecliningemploymentandearningsinminingisthatmineraldepositsare always,ultimately,exhausted,andtheindustryhastoshifttonewgeographicareas.Thelifeof modernminingoperationshasbecomerelativelybrief.Forinstance,theproposedCopperwood ProjectontheshoreofLakeSuperiorinGogebicCountyisdesignedtooperateforonly13 years.TheWhitePinecopperminingcomplexjusttothenortheastoftheproposed CopperwoodProjectbeganoperatingin1954,largelyshutdownin1984,recoveredin1986

40

Ibid.

46

andoperatedwithabout1,100workersuntilthemid1990s,over40yearslater.RecallFigureN above. Inaddition,becauseofthehighprofitsthatareassociatedwithperiodsofhighmetalsprices andprofitsqueezeswhenmetalpricesfall,theretendstobeongoingstrugglesbetweenminers andminingcompaniesoverthesharingofthoseprofitsandlosses.Thishasledtooftenbitter andextendedstrikesandlockouts,suchaswereexperiencedattheWhitePineMine,thatalso takeatollonlocalcommunities,addingstillanothersourceofeconomicinstabilitytoadjacent communities. E.TheEconomicImplicationsofEnvironmentalDegradation Finally,asdiscussedinmoredetailearlierinthisreport,thequalityofthelocalnaturaland socialenvironmentsarecrucialtosupportingseveralimportantsourcesoflocaleconomic vitality:Holdingandattractingnewresidentsandbusinesses,attractingthefootlooseincome associatedwithretireesandinvestors,attractingbusinessactivitylinkedtoprofessionaland technicalservices,hightechmanufacturing,andinformationworkers,andencouraginga diversifiedvisitoreconomy.Mineralextractiontendstobelandintensive,imposingadisruptive footprintonthenaturallandscapeandcontributingtosignificantenvironmentaldegradation. Thismakesminingdependentareaslessattractiveplacestolive,work,anddobusiness, depressingeconomicdiversificationanddevelopment. Putsomewhatdifferently,alleconomicactivitiesarenotnecessarilycompatiblewithallother economicactivities.Thatiswhyalleconomicactivitiesdonottakeplaceinthesamelocation. Certaineconomicactivities,becauseoftheircharacteristics,cananddodisplaceothertypesof economicactivities.Theenvironmentaldegradationassociatedwithminingwilltendto displacethoseeconomicactivitiesthatthriveonattractivenaturalandsocialenvironments. Obviouslytourismandrecreation,andtherestofthevisitoreconomy,whichrelyonattractive naturallandscapes,willbedisplacedbyindustrialactivitiesthatdegradethoselandscapes.But, aswillbediscussedbelowinChapterV,thisisnotprimarilyamatteroftourism.Naturaland socialamenitiescanattractnewpermanentresidents,entrepreneurs,newbusinesses,aswell asretirees.Amenitysupportedeconomicdevelopmentcanalsobeshortcircuitedby industrialactivitiesthatdamageattractivelocalcharacteristics.Mining,becauseitislandscape intensiveinitsoperationsandbringsinstabilitytocommunitiesdependentuponit,cando exactlythat. Thewellknowneconomicinstabilityofminingdependenteconomiesleadsbusinessesand householdstobeverycautiousabouttheinvestmentstheymakeinareasdependenton mining.Sinceworkers,residents,businesses,andlocalgovernmentsdonotknowhowlongthe employmentandpayrollswilllast,theyreducetheirriskbyavoidingfixedinvestmentsthatmay belostifthemineralindustryentersaperiodofdecline.Asaresult,mineralworkerscommute longdistancestojobs,maintainingresidencesatsomedistancefromthemineraldevelopment. Businessesarehesitanttodeveloplocalcommercialinfrastructureandlocalgovernmentsare hesitanttofinancepublicinfrastructurewithdebt.Entrepreneurialtalentalsotendstoavoid
47

orleavecompanytownsbecausetheminetendstodominatethetowneconomicallyand politicallycreatingacultureofdependenceratherthanoneofinnovation.Theresultisaless fullydevelopedlocaleconomyandmoreincomeleakageoutofthelocaleconomy.Inshort, excessdependenceonminingtendstoconstrainlocaleconomicdevelopment,leadingtothe depressedeconomicconditionsthathavecometocharacterizemanyminingdependentareas. Thepolicyimplicationsofthisdescriptionoftheproblemarestraightforward: a. Acommitmenttominingisprobablynotagoodeconomicdevelopmentstrategy becauseoftheinstabilityitcanbringtothelocaleconomy. b. Inaddition,avoidingadditionalenvironmentaldamageassociatedwithnewminingand repairingthedamageassociatedwithpastminingisimportantinmakingthecommunity anattractiveplaceforcurrentandnewresidentsandbusinesseswhichpromoteslong termeconomicdevelopment. c. Projectingthataminewilloperatecontinuouslyforanindefiniteperiodwithmoreor lessconstantemploymentandpayrollisunrealisticbecauseitignoresthemarketcycles inmetalpricesandproductionandtheongoingdeploymentoflaborsavingtechnology. Formorethanacentury,metalproductionandemploymenthavefluctuatedwidely disruptingcommunitiesthatdependonmining.Therearenotwentytothirtyyear periodswhenmajorexpansionsandthencontractionsdidnottakeplace.RecallFigure Qabove. d. Assumingthatallofthejobsassociatedwithaminingprojectwillbefilledbylocal residentswhowillthencontinuetoliveintheareaimmediatelyaroundthemineand, therefore,thattheminepayrollwillprimarilycirculatewithinthatlocaleconomyis unrealistic.Manyofthejobswillgotoinmigratingandincommutingworkersfroma broadgeographicarea.Asaresult,thatpayrollanditsimpactontheeconomywill quicklyleakoutofthelocalareaandbediffusedacrossabroadgeographicarea.

4.MetalMiningsPotentialEconomicConnectionstoWesternUPCommunities:Using theProposedCopperwoodMineasanExample
Inordertomovebeyondgeneralitiesand/orrelyontheexperiencesofothercommunitieswith experiencewithcoppermining,wewillusetheCopperwoodmineandmillproposedfor GogebicCountytoestimatethepositiveeconomicimpactsthatsuchacoppermineandmill couldhaveontheregionaleconomyintermsofjobsandincome.Thistypeofeconomicimpact modelingisusuallypresentedasifitwereacompletelistingoftheeconomiceffectsofsucha mine.Becausethefocusofsuchimpactanalysisisonadditionaljobs,additionalpayroll,and additionaltaxrevenuestostateandlocalgovernments,allofwhichareseenasgoodthings, thistypeofanalysisisapurebenefitanalysis.Themineisassumedtoproducebenefitsbutno
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costs.Thatis,themineispresentedasafreelunchthatanyrationalpersonwould enthusiasticallysupport.Italwaysdepictsanofferthatistoogoodtorefuse. Ingeneral,economicswarnsusthatthereisnosuchthingasafreelunch.Thatis,almostall realworldeconomicsituationsrequireustoweighbenefitsagainstcostsandmakeadecision thatinvolvesatradeoff:theacceptanceofsomesignificantcostsinreturnfortheassociated benefitsifthebenefitssufficientlyexceedthecosts.Whensomeoneoffersbenefitswithout costs,theyarelikelyhidingsignificantcosts. Abovewehavediscussedtheeconomiccharacteristicsassociatedwithmetalminingthathave oftenpreventedmetalminingfrombringingdurableprosperitytotheregionaroundthemine anditsassociatedindustrialfacilities.Herewewilldiscussemploymentandincomebenefitsas iftheywerethatillusivepureeconomicbenefit,thefreelunch.Wewillthenreturntoputthe fullsetofbenefitsandcostinamorerealisticcontext. A.TheProposedCopperwoodMineandMill Tomakethisanalysismoreconcretewewilluseacoppermineandmillsimilartotheproposed CopperwoodProject,anundergroundcoppermineproposedforasiteneartheshoreofLake SuperiorinGogebicCounty,MI.TheactualCopperwoodProjectwouldbeabout30miles northeastofIronwoodinGogebicCountyand20milessouthwestoftheWhitePinein OntonagonCounty.Theminecomplexwouldincludeamillandconcentratorthatproduces copperoreconcentratesthatwouldbeshippedelsewheretobeconvertedintocoppermetal.A surfacetailingsdisposalfacilitywillbeconstructedtoseparateliquidandsolidwastesfromthe concentrationprocess.Thatwillrequireapartiallyexcavatedpondabout1.25by0.5milesin sizesurroundedbyearthenembankmentsashighas140feetabovetheexistingground surface.41 Inordertomakeouranalysismorebroadlyuseful,whatwemodelisamineandmilllikethe CopperwoodProjects,butlocatedsomewherewithinourfivecountyeconomicstudyareas: Gogebic,Ontonagon,Houghton,Keweenaw,andBaragaCounties.Weadoptthisapproach becausenoneoftheindividualcountiesintheWesternUPcanbethoughtofasstandalone integratedeconomies.Theworkercommutingdatadiscussedabove,boththemorerecentdata andthatassociatedwiththeoldWhitePineMinecomplexinOntonagonCounty,indicatethat thepopulationofthisregionisquitemobile,livinginonelocation,workinginanother,and shopping,potentially,inathirdlocation.Bycombiningthefivecountieswereduceinandout commutingfromourstudyareaandincorporatethetwomajortradecenters,Houghtonand Ironwood.Thisapproachallowsustocapturemoreoftheeconomicimpactsassociatedwith thecoppermineandmillwithinthestudyarea. FollowingthefeasibilitystudyfortheCopperwoodProject,weassumethatthemineandmill wouldoperatefor13years,annuallyproducing,onaverage,2.3milliontonsoforeandore
FeasibilityStudyoftheCopperwoodProject,UpperPeninsula,Michigan,USA,preparedforOrvanaResourcesUS CorporationbyKDEngineering,March21,2012,Figure20.3andp.192.
41

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concentratescontaining56.2millionpoundsofcopper.Averagedoverthelifeofthemine,the annualvalueoforeconcentratesproducedfromthemineandmillwouldbeabout$140 million.42Overthelifeofthemine$1.8billionworthoforeconcentratewouldbeproduced. Themineatfullproductionwouldrequire112workersengagedinproduction,another156 providingserviceandsupport,and32supervisors,managers,andprofessionals.Thetotal workforceassociatedwiththeminewouldbe188.43Themillandconcentratorwouldrequire another85workers44foratotalof273workersassociatedwiththeproposedCopperwood Project.Averageannualpay,includingovertimeandbenefits,fortheseworkerswouldbequite high,almost$87,000peryear.45 B.TheDistributionsoftheEconomicValueCreatedataCopperMine AsmentionedabovetheCopperwoodProjectisexpectedtoproduce$140milliondollarsayear worthofcopperandsilveroreconcentrates,mostlycopper.Overthe13yearlifeofthemine thatrepresentsalmosttwobilliondollarsworthofoutput.Thewaythiseconomicvalue createdbythemineisdistributedamongstakeholderspartiallydeterminesthelocaleconomic impactofthemine. Thetotalvalueofoutputfromtheminingcomplexcanbedividedintotwoparts:thatwhich wascreatedatthemineandmillandthatassociatedwiththeoutputsofotherbusinessesthat werepurchasedtouseatthemine.Themineandmillwillrequirecomplexminingequipment thatisnotmanufacturedlocally.Itwillrequireelectricitythatwillnotbegeneratedonsitebut purchasedfromanexistingelectricutility.Itwillalsorequirechemicalreagentsthatwillbe importedfromdistantchemicalmanufacturers.Thevalueassociatedwiththoseproductive inputscannotbeattributedtothemineandmill.Thatvaluewascreatedelsewhere. Economistsdistinguishthenewvaluecreatedbyabusinessfromthevaluepurchasedfrom otherbusinessesbyidentifyingthevalueadded:Thevalueoftheminesoutputminusthevalue oftheminesinputspurchasedfromotherfirms. InthecaseoftheCopperwoodProjectabout75percentofthevalueofthecopperandsilver oreconcentratesthatareshippedfromtheminewillbetiedtovaluecreatedbytheminingand millingoperationitself.Theother25percentofthevaluewillbeassociatedwithpurchases
Ibid.Table22.2.Theassumedcopperpricewas$2.75perpoundandthesilverpriceassumedwas$20per ounce.Over90percentofthevalueisassociatedwiththecopper.Thevalueofthecontainedcopperandsilver,of course,wouldbehigher($152million),butthatwouldrequiretheadditionalcostofthesmeltingandrefiningof theoreconcentrates.Sincethevalueofthecopperandsilveroreconcentratesdependsontheassumedmarket priceforcopperandsilverandthecostofshipping,smelting,andrefiningtheconcentrates,theactualvalueofthe oreconcentratesproducedcouldspanafairlywiderange.TheCopperwoodProjectsestimateoftheexpected valueisinthesamerangeastheIMPLANmodelsestimate. 43 Ibid.Table16.14. 44 Ibid.Table21.14 45 Ibid.Table16.14,pp.151153,forthemineworkers;Table21.14forthemillworkers.Thesewagesand salariesinclude30to35percentinbenefitsdependingonwhethertheyaresalariedorhourlyworkers.The benefitsexplicitlydescribedforthemineworkerswerealsoassumedtobereceivedbythemillworkers.
42

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fromotherbusinesses.Thisisnotsurprising.Miningprimarilyinvolvestheextractionofthe giftofnatureratherthanthepurchaseofmaterialsfromothercompaniesandthefabrication ofanewproductfromthosepurchasedgoods.Theearthisthesourceoftheprimarymaterials, notsomeotherfirm.Totheextentthatlocalfirmscanprovidesomeoftheinputsrequiredby themineandmill,additionaleconomicactivitymaybestimulatedlocally.Thesepotential indirectimpactsoftheminewillbediscussedbelow. Thatvalueaddedbythemineandmill,inturn,canbebrokendownintotheproductive contributionoftheworkforce,thecapitalinvestedinbuildingthemineandmill,thegiftof nature,theproductivityofthemineraldepositbeingdeveloped,andtheentrepreneurial effortsofthemanagementandinvestors.Becausemetalminingtendstobecapitalandland intensiveandbecausetechnologicaldevelopmentshavetendedtobelabordisplacing,wages andsalariesrepresentarelativesmallpartofthevalueaddedbythemineandmill.
FigureV.

ModelingoftheproposedCopperwoodprojectconfirmsthis.Compensationpaidtoemployees wouldrepresentlessthanafifth,19percent,ofthetotaldirectvalueaddedoraboutone seventhofthetotalvalueoftheoreproduced.Twothirdsofthevalueaddedbythemineand millwouldbetiedtopaymentsmadetotheownersoftheland,mineraldeposit,mine,andmill aswellasthosewhohavelentmoneytotheCopperwoodproject.SeeFigureVabove.

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Thisisimportantinformationrelevanttothelikelylocaleconomicimpacts.Paymentsto stockholdersandotherinvestorsareunlikelytobespentlocallybothbecausethecapitalfor developingaminingcomplexisraisedonnationalandinternationalcapitalmarketsandthe returnwillflowtothosedistantlocationsandbecausethereturnonandofthatcapitalis unlikelytobespentonconsumptiongoods;itismorelikelytobereinvestedinotherventures aroundtheworld. Wagesandsalariespaidtothelocalworkforce,ontheotherhand,aremorelikelytobespent withinthecommutingregioninwhichtheworkersliveandshop.Thatmaynotbethe immediateareaaroundthemine,butitwillbewithinthelargereconomicareainwhichthe mineisembedded.Forthatreason,thelargertheshareofthevaluecreatedthatgoesto employeecompensation,thelargerthelocalandregionalimpactsarelikelytobe.However, thisdoesnotmeanthatallofthatmoneywillgointothelocaleconomy.Muchofworkerspay checksinasmalltownorruralareaquicklyleaksoutofthelocaleconomy.Stateandfederaltax payments,largepurchasesfromdistanttradecentersaswellasonlinepurchases,investments elsewhere,moneyspentontravel,etc.canaccountforasignificantfractionofthedollarsthat areearned. Theindirectbusinesstaxesareprimarilypropertytaxesandsales(excise)taxes.Mostofthem (90percent)arestateandlocaltaxes.Howbiganimpacttheyhaveonthelocalstudyarea dependsonhowlargethestateshareofthesetaxesisandhowmuchofthatstateshare automaticallyflowsbacktosupportlocalgovernmentbudgetsinthevicinityofthemineand mill. TheProprietorsIncomeisthemoneyearnedbyselfemployedindividualsandunincorporated businesses.Itisunclearwhatpartofthisincomeflowfromthemineandmillactivitiesislikely tocirculateinthelocaleconomy. C.TaxRevenuesandIncreasedDemandforPublicServices:FiscalBalance Oneofthebenefitsofmetalminingthattheminingcompaniesemphasizeistherevenues thatflowtolocalandstategovernmentsasaresultoftaxesleviedontheminingactivityand thepotentialpaymentsofroyaltiesinwhichlocalandstategovernmentsmayshare.Totaling upallofthetaxespaidonsalariesandminingcompaniesprofits,theincreasedpropertytax baseassociatedwiththebuildingofthemine,theoremillingandhaulingequipment,and potentiallynewhomesandbusiness,aswellasthesalestaxrevenuesassociatedwithboththe mineandworkerspurchasinggoodsandservicesinthelocaleconomycanleadtoaverysizable increaseinrevenuesflowingtolocalandstategovernments. Theseadditionalgovernmentrevenuesareoftentreatedasapurebenefit:Becauseofthe buildingandoperatingofthemine,itisassumedthatlocalandstategovernmentswillbemuch moreflushincashallowinglocalgovernmenttoeitheroffermoreorhigherqualityservicesto

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residentsandbusinessesand/orreducingwhathouseholdsandbusinesseshavetopayforthe existinglevelofpublicservices. Thisfreelunchapproachtotheimpactofmetalminingonlocalcommunitiesisobviously misleadingsinceitignoresthereasonthattaxesareleviedinthefirstplace:tofundacertain levelofservicestosupportlocalhouseholdsandbusinesssneeds.Taxleviesarethecostof providingthelocalroadsystemtoallowbusinessesandresidentstomoveconvenientlyand safelythroughtheregion,thecostofprovidingclassroomsandteachersforthechildrenof workers,thecostofexpandingsewer,water,andelectricinfrastructuretosupportthenew industrialoperationsandpopulation,thecostofmaintainingasufficientpoliceandfirefighting forcetoprotectbusinessandhouseholdpropertyandlives.Inaddition,localandstate governmentsofteninheritthejobofmonitoringairandwaterqualityandinterveningtorepair environmentaldamageifaminingcompanygoesbankrupt. Theadditionalcostsassociatedwithservingthepublicserviceneedsassociatedwithnew mineralextractionprojectsoftenaresohighthatstateshavepassedlawsrequiringmineral extractioncompaniestoprepaytaxessothattherearerevenuesavailablebeforethemining beginstohandlethosepubliccosts.Wherepublicroadsareusedasmineralhaulroads,some localgovernmentshaverequiredsignificantadditionalpaymentsbythemineralcompaniesto supportthemaintenance,repair,andexpansionofthepublicroadsystem.Toprotectagainsta financiallyfailingmineralcompanyabandoningaminesitewithoutmitigatingthe environmentaldamage,manystatesrequirethatasizablebondbeputupbythemineral companytocoverexpectedreclamationandmediationcosts.Oftenthosebondsare inadequatetothetaskandthepublicislefttocopewiththoseenvironmentalcosts. Treatingprojectedtaxandotherrevenueflowstolocalandstategovernmentsaspure economicbenefitsisaseriouseconomicerrorsinceawholesetofadditionalcoststhatthose governmentrevenueswillhavetofinanceareignored.Whatisnecessarybeforeapprovinga miningprojectisacarefulandunbiasedstudyofthefiscalbalanceespeciallyatthelocal governmentlevel.Thecostofmeetingtheadditionaldemandforserviceshastobecompared totheincreasedflowofrevenuestothoselocalgovernments.Thisrequiressitespecificanalysis sincetheimpactsonpublicservicesandthemixoftaxesleviedonminingactivitiesvariesfrom mineralsitetomineralsiteandfromstatetostate.Thisinformationshouldbeavailabletothe publicbeforegovernmentauthoritiesbegindeliberatingontherequiredminingpermitsand beforethepublicareaskedtocommentontheproposedminingproposal. D.TheDistributionoftheEconomicImpactsofaCopperMiningProject Thefactthatmuchoftheemployeecompensationislikelytocirculatewithinthestudyarea wheremostoftheemployeesarelikelytoresideandshopisimportantindeterminingthe overallimpactofthemineandmillonthestudyarea.Asthemineemployeesshopintownsin thestudyarea,thatspendingwillhelpputadditionalworkerstoworkatretailstores,local eatinganddrinkingestablishments,healthfacilities,etc.inthestudyarea.Therippleeffects ofthisemployeespendingisoneofthesourcesofthemultipliereffect,andisshowninthe
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factthatmorejobsarecreatedintotalthanjustthenumberofworkersdirectlyemployedat themine.Theimpactofemployeespendingonthestudyareaeconomyiscalledtheinduced impactofthemine.Itssizeisdependentontheabilityofthelocaleconomytocapture,hold, andrecirculatethatincome.Iftherearelimitedopportunitiesforworkerstospendtheir incomelocallybecausetherangeoflocalbusinessesislimited,mostofthatworkerpayrollwill alsoleakoutofthelocalcommunity.Ontheotherhand,ifthereisarelativewelldeveloped commercialinfrastructure,thatpayrollcangetspentlocallyandcirculatedwithinthelocal economycreatingadditionaljobsandincome. Thereisoneothertypeoflocalimpactassociatedwithanewbusinessenterpriseinanarea. Almostallbusinessenterprisesneedtopurchaseinputsinordertooperate.Themineandmill, forinstance,willneedelectricity,fuelforitsvehicles,chemicalreagentsfortheore concentrator,etc.Whenthesearepurchasedlocally,theyarelikepayroll,theycausemoneyto flowintothestudyareabusinessesthatcanprovidethosenecessaryinputstotheminingand millingprocess.Economistshavelabeledtheimpactofthesesupplyactivitiesasindirect impacts.Aswithinducedimpacts,thesizeoftheseimpactswillbepartiallydeterminedbyhow completeanddiversethelocaleconomyis.If,forinstance,muchofwhatthemineneeds cannotbepurchasedlocallybecausetherewaslittlepreviousneedforit(e.g.explosives,ore extractionchemicals,specializedequipment,etc.)theindirectimpactsarelikelytobelimitedas themineisforcedtogooutsideofthelocaleconomytoobtainwhatitneeds. Thediscussionabovemakesclearthatforanygivensizedproject,thestudyareaeconomic impactswillbegreaterinareasthathavewelldevelopedtradecentersandthelocaleconomic impactswillbesmallerthemorepurelyruralastudyareais.InthecontextoftheWesternUP therearetwotradecenters:TheHoughtonHancockurbanareaofabout12,000andthe IronwoodHurleyurbanareawithabout7,000residents.Theseshouldallowthestudyregionto capturemoreoftheemploymentandincomeimpactsassociatedwithacoppermineandmill thanwouldbepossibleinapurelyruralarea. E.ModelingtheImpactsoftheCopperwoodProjectontheWesternUP WehaveappliedtheIMPLANeconomicimpactmodeltoamineandmillsimilartothe proposedCopperwoodProject.IMPLANisamathematicalmodelthatseekstodescribethe economicinterconnectionsbetweendifferentbusinessenterprisesaswellasbetweenthose businessenterprisesandtheworkforce,households,andgovernments.Asdiscussedabove,the modelseekstotracethewagesandsalariesthatarepaidtoworkersandthepurchasesof inputsbybusinessesandworkers.Italsotracksrevenueflowsfrombusinessesandworkersto andfromgovernmentagenciesthroughtaxesandgovernmentspending. Wehaveusedthedescriptionoftheworkforceandwagesandsalariescontainedinthe Copperwoodprojectfeasibilitystudydiscussedabove:Inparticularthemineandmillcomplex wouldemploy273workerswithanaverageannualpay(includingbenefitsandovertime)of about$87,000.Becauseoftheveryhighpayassociatedwitheachjobatthemineandmill,a

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significantnumberoflowerpaidjobsarecreatedbyboththepurchasestheminemakesof necessaryinputsandtheexpendituresofworkersoftheirpaychecks. Asthe273mineworkersspendtheirpaychecksinthestudyarea,256additionaljobsare createdpayingabout$22,500peryear,aboutaquarterofwhattheminejobspayandathird belowtheaveragepayperjobinthefivecountystudyareain2010.Theindirectjobscreated bytheminingcompanysexpenditurescreate264jobspayingabout$31,600peryear,about7 percentbelowtheaveragepayinthestudyarea.Thetotalemploymentimpactinthestudy areaisalmost800jobs,almostthreetimesthe273miningjobs.Becauseofthelowerpay associatedwiththeinducedandindirectjobs,however,thetotalwagesandsalariesassociated withallofthejobs,direct,indirect,andinduced,arejust60percenthigherthanthepayearned attheminedespitethetotaloftheinducedandindirectjobsbeingalmost200percentlarger thanthemineemployment.Theadditionaleconomicvaluecreatedasthecoppermines expenditurescirculatethroughthestudyareaaddsonly20percenttothevaluecreatedatthe mine.Thisreflectsthecapitalandlandintensivecharacterofametalminecomparedtomost regionalbusinesses.SeeTableGbelow. 46 TableG.

EconomicImpactofaCopperMinetheSizeoftheProposed CopperwoodMineBuiltintheWesternUPFiveCountyStudyArea
AnnualImpactsduringtheOperationoftheMine
ImpactType DirectEffect IndirectEffect InducedEffect Total Effect Employment 273 264 256 793 Employee Compensation $24,206,879 $8,326,180 $5,741,579 $38,274,639 ValueAdded $127,076,928 $16,773,177 $13,857,757 $157,707,861 Output $168,382,473 $34,155,378 $24,458,403 $226,996,254

TableGalsounderlineswhydescribingthemineintermsofthevalueofitsoutputorthevalue addedbytheminewouldbemisleadingfromalocalimpactpointofview.Iftheimpactofthe mineweretobeexpressedintermsofthevalueoftheoutputproducedbythemine,the

Employmentincludesbothfullandparttimejobs;thesejobsarereportedonanannualbasis,i.e.ajobfora year.Theemployeecompensationincludesbenefitsandanyovertimepay.Valueaddedisthevalueofproduction lessthecostofpurchasedinputs.Itconsistsprimarilyofworkerpayrollandpaymentstoownersoftheinvested capital(profitsandinterest)andownersofthelandandmineralrights.Valueofproductionisthesalesvalueof thecopperoreasitleavesthemineandconcentratorsite.Employeecompensationistheaverageannualpay multipliedbythenumberofworkers.
46

Source:IMPLANModeling.See Text

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impactwouldappeartobeseventimesgreaterthantheactualminewagesandsalaries receivedbyresidentsofthestudyarea.Evenifthemeasureoftheminesimpactwerestatedin termsofvalueaddedatthemine,theapparentimpactwouldstillbeoverfivetimesthemine payroll.Thisisjustareflectionofhowcapitalandlandintensivetheminingprocessisandhow littleofthevaluecreatedflowstoworkers.Ifwelookatthetotalimpactofthemine,thevalue oftotaloutputcreatedisalmostsixtimeslargerthanthesizeofthetotalpayrollthatworkers willreceive.SeeTableGabove. Specifyingthenumberofjobsortheannualpayrollthatmaybecreatedastheresultofanew economicactivityisnotactuallyveryinformativesinceitdoesnottelluswhattherelative importanceofthatchangeinemploymentorincomeis.Somereferencetototalnumberofjobs ortotalpayrollinthestudyareaisnecessarytojudgetherelativeimportanceofaparticular change. The273newjobsattheminewouldrepresentlessthanonepercentoftotalstudyareasjobsin 2010whichnumbered32,800.Becauseofthehighpayassociatedwiththoseminingjobs, however,thepayrollassociatedwiththosejobswouldrepresentslightlyover2percentoftotal laborearningsin2010.47The793totaljobimpactofthemineonthestudyarea,including indirectandinducedjobs,wouldrepresent2.4percentof2010employmentandthetotal employeecompensationimpactwouldhaverepresented3.4percentoftotallaborearningin thefivecountystudyarea. Between1984and2010jobsinthefivecountystudyareagrewatabout300jobsperyear. Thatquartercenturyperiodincludestherecoveryfromthedoublediprecessionintheearly 1980s,therecessionsof1990and2001aswellastheGreatRecessionthatstartedinDecember of2007.However,therewaslittleornojoborpayrollgrowthinthe20002010periodinthe studyarea.Butbetween1984and2000,jobgrowthwasabout540jobsperyear.Similarly, realpayrollgrowthbetween1984and2010averaged$11.8millionperyear.Fortheshorter, fastergrowingperiodof1984to2000,realpayrollgrowthwasalmosttwiceasfast,$20.7 millionperyear. Usingthispastgrowthinjobsandpayrolltoputthecopperminesimpactsincontext,thetotal jobimpactoftheminewouldrepresent2.6yearsoftheslowerjobgrowthand3.2yearsof payrollgrowth.Atthefastergrowthrateonthe1980sand1990s,theminestotaljobimpact wouldrepresent1.5yearsofjobgrowthandsomewhatlessthan2yearsofrealpayroll growth.48 Overtheminesprojected13yearlife,ifjobandpayrollgrowthweresimilartothe1984to 2010period,almost4,000jobswouldbeaddedinthestudyareafromnormalgrowthofthe economyandover$150millioninpayrollwouldbeadded.Ifjobandpayrollgrowthwereto
U.S.DepartmentofCommerce,BureauofEconomicAnalysis,RegionalEconomicInformationSystem. Ibid.

47 48

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returntothe19842000levels,7,000jobswouldbeaddedovera13yearperiodand270 millioninannualpayrollwouldbeaddedbynormaleconomicgrowth. Thepointofthislattercomparisonissimplytoindicatehowlargethejobandpayrolllosscould beiftherestartingofmetalminingandprocessingintheregionweretodamagefuture regionaleconomicvitalitybecauseitmadetheregionlessattractiveasaplacetolive,engagein business,andraiseafamily.Asdiscussedabove,qualityoflifeandthequalityofthenatural environmenthaveproventobeimportantdeterminantsofthelocationofeconomicactivity. Underminingthatqualityoflifecouldreduceeconomicvitalityinawaythateliminatesfar morejobsandpayrollthanthenewenvironmentallydamagingindustrialactivitycreates. Itisalsoimportanttokeepinmindthatjustbecausetheminingcompanyprojects13yearsof continuoushighpaidmineemploymentdoesnotnecessarilymeanthatiswhattheminewill deliver.Theviabilityofanyminingprojectdependsonexpectedmineralpricesbeingrealized.If theyarenot,theminewillperiodicallyshutdown,layingoffitsworkers,andmaypermanently shutdownlongbeforetheminingcompanyoriginallyforecast.Theunstablehistoryof employmentattheWhitePineMinethatwaslocatedinthesamevicinityastheproposed CopperwoodProjectshouldremindusofthat. Thisbringsusbacktothefactthatmosteconomicchoicesinvolveevaluatingbothcostsand benefits.Miningcompaniesareveryfamiliarwiththeimportanceofthiseconomiccalculus. Justbecausetherearecopperoredepositsataparticularlocationdoesnotmeanthatmining companieswillrushintodevelopthem.Insteadminingcompanieswillcarefullyevaluateallof thecoststheywouldhavetofacetobringthoseorestothesurfaceandprocessthemintoa marketableproduct.Theminingcompanywillalsoanalyzewhatthefuturevalueofthemetals producedislikelytobe.Therisksinvolvedduetofluctuatingcostsandmetalvaluesand unexpectedcomplicationintheprocessofminingandprocessingtheorewillalsobeevaluated. Inmostsettings,miningcompanieswillfindthatthecostsexceedthebenefitsand/orthatthe risksaretoogreatandwilldecidenottoproceedwithmining.Thatiswhytherearesomany knownoredeposits,someknownforoveracentury,thathavenotbeendeveloped.Walking awayfromaknownoredepositthedevelopmentofwhichwouldinvolvecoststhatexceed benefitorunacceptablefinancialriskwouldnotbeconsideredeconomicallyirrational.Itis exactlywhatanyrationalbusinesswoulddo. Becauseminingtendstodopermanentdamagetoland,landscapes,water,andother environmentresources,miningcompaniesunavoidablyhavetomakeuseofpublicresources. Thatiswhyminingisregulatedandrequiredtoobtainabroadrangeofpermits.Justasa miningcompanywouldnotpursueamineraldepositwithoutanalyzingthecostsandrisks,the publicshouldnotdosoeither.Thecostsaboutwhichthepublicneedstobeconcerned, however,arethepotentialdamagetopublicenvironmentalresourcesorthedisruptionoflocal communities.Thepublicalsohastobeconcernedabouttheriskthatthebenefitswillnotbeas greatastheminingcompanyprojectsand/orthatthepubliccostswillbehigherthanthe miningcompanyprojects.Thevolatilityofminingemploymentandpayrolldiscussedearlieris partofthisriskanalysis.
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 Justasitisnotirrationalwhenaminingcompanydecidesnottoproceedwiththedevelopment ofamineraldepositbecausethebenefitsdonotjustifythecosts,citizensandtheir governmentsarenotactingirrationallyiftheyrejectaminingproposalbecauseintheir judgmentthepubliccostsappeartobegreaterthanthepublicbenefitsand/orbecausethe risksarejudgedtobetoogreat.

5.Summary

Theeconomicattractionofmetalminingisthatminingandoreprocessingpaywagesthatare substantiallyhigherthantheaverage.Between1990and2000theaverageannualpay associatedwithmetalmininginMichiganwas81percentlargerthantheaverageannualpay acrossallMichiganwageandsalaryjobs.After2000,metalminingasanindustryhadshrunkso muchthatstatisticsonitwerenolongerpresentedatthestateandcountylevel.TheNational MiningAssociationreportedaverageannualpayinAmericanmetalminingin2010asbeing74 percentaboveallprivatesectorjobs:$81,300comparedto$46,751.Metalminingprovides someofthehighestpaidjobsavailabletobluecollarworkers. Despitethehighwagespaidinmetalmining,thecommunitiesthatrelyonmininghavenot,in general,shownsignsofwidespreadprosperityandeconomicvitality.Employment,population, andtotalcommunityincomehavegrownmuchslowerinminingcommunitiesthanin communitiesnotdependentonmining.Oftenunemploymentandaverageincomeperperson havealsobeenlower.ThisfeatureofminingcommunitiesacrosstheUnitedStatesandaround theworldhasledeconomiststostudytheapparentcurseofnaturalresourceabundance. TheWesternUPhashadlongexperiencewithmining,butitisdifficulttodetectsignsof unusualprosperitythathasflowedfromthatexperience.Instead,therehasbeenaseriesof boomsandbuststhathaveleftcommunitiesineconomicdifficulty.Weidentifyfivereasonsfor thisanomalyofmining:Thefailureofthehighpayinminingtobringprosperitytomining communities. i. Theinstabilityofmineproduction,employment,andpayrolltiedtofluctuationsin demandandpriceonnationalandinternationalmarkets. ii. Theimpactofongoinglabordisplacingtechnologicalchangethatconstantlyreduces theworkforcerequiresforanygivenlevelofmineproduction. iii. Mineemployeesareverymobile,commutinglongdistancetoworkwhile maintainingtheirresidencesoutsideoftheareaimmediatelyimpactedbythe miningandmilling.Thisleadsmuchoftheminingpayrolltoleakoutoftheregion immediatelyaroundthemine.
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iv. Mines,ultimately,alwaysdepletetheireconomicallyviableoredepositsandshut down.Theaveragelifeofametalminehasdeclinedsignificantlyinrecentdecades. Forinstance,thecopperminingactivitiesinButte,Montana,havelasted125years, albeit,employingadrasticallyreducedworkforce.TheWhitePinemineoperatedfor almost45years.ButtheproposedCopperwoodprojectinGogebicCountyis estimatedtolast13years. v. Miningislandintensiveandasaresultcanhavenearlypermanentimpactsonthe naturalenvironment.Environmentaldegradationcansignificantlyreducethe attractivenessofaminingareaasaplacetolive,work,andraiseafamily. Metalminingisoftendescribedasapurebenefit:Valuabletreasure,includinggoldandsilver, isremovedfromtheearthbypayingworkersmuchhigherwagesthancouldbeearned anywhereelse.But,asoutlinedabove,thereareclearlycoststhatareincurredalongsidethe benefits.Rationaldecisionmakingrequiresthecostsandbenefitstobecarefullyweighedand thereisnoreasontobelievethatthebenefitsofminingalwaysexceedthecosts.Mining companiesknowthis.Theydolotsofexplorationtofindmineraldepositsandthendolotsof drillingandeconomicengineeringanalysistodetermineifthevalueofthemineralonce extractedandprocessedjustifiesthecoststhatwouldhavetobeincurred.Miningcompanies regularlydecidenottoactivelymineaknownoredepositbecausethecostsareexpectedto exceedthevalueproduced.Miningcompaniesregularlyleavemineraldepositsinplace becausethatistheeconomicallyrationalthingtodo. Thepublicshouldbeasrationalandhardnosedasminingcompanies:Thepublicshould carefullystudyboththecostsandbenefitsofnewmetalmining,butfromapublicinterest pointofview.Ifthecostsappeartoexceedthebenefits,thepublicshouldrejecttheproposed minejustasaminingcompanywouldiftheprivatecostsexceededtheprivatevalueproduced. Back to table of contents

V.ThinkingabouttheEconomicFutureoftheWesternUPRegion

1.ThinkingTooLocally:LookingatRegionallyIntegratedEconomies
Residentsofsmalltownsandruralareasoftentendtoconceptualizethelocaleconomyasthe geographicareaimmediatelyaroundtheirresidence.Inthatcontexteconomicdevelopment appearstorequirethatthesamemixofemploymentandshoppingopportunitiesexistineach smalltownorruralareaasisfoundinlargerurbantradecenters.Thatnotonlyisunlikelybut wouldalsoeliminatesomeoftheattractivequalitiesofsmalltownsandruralareas:low populationdensity,openspace,aslowerwayoflife,etc.Suchanapproachtoregional economicdevelopment,ifitwerepossible,wouldurbanizeruralareasandsmalltowns.
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Theeconomicwellbeingofpeoplelivinginsmalltownsandruralareasisoftentiedtothe largerregionaleconomythatiswithinareasonabletraveltimeoftheirresidence.Most householdslivinginruralareas,evenfarmhouseholds,dependonthelargerregionaleconomy foremploymentopportunities.Manymembersoffarmhouseholdsareemployedinnon agriculturaljobs.Itisthatnonfarmincomethatallowsfarmhouseholdstohavestandardsof livingsimilartothoseofurbanhouseholds.Thesamethingcanbesaidaboutsmalltowns. Manyresidentsofthosetownsdonotworkinthosetownsortheimmediateruralarea surroundingthem.Theycommuteoutforemployment.Inadditionmanyofthepeoplewho shopinasmalltown,donotliveinthosetownsbutinthesurroundingruralareas.Smalltowns areusuallytradecentersforcertaintypesofgoodsandservicesforalargerruralarea.Forvery specializedand/orveryexpensivepurchases,boththeresidentsofsmalltownsandthe residentsofruralareasarelikelytotraveltolargertradecenterstomakethepurchases. Thismeansthatruralandsmalltownresidentssignificantlyrelyoncommutingtolargertrade centersfortheirprovisioningandforemploymentopportunitiesandhouseholdincome.Atthe sametime,thoselargertradecentersrelyonthesurroundingsmalltownsandruralareasto markettheirgoodsandservices.Becauseofthis,thelocaleconomyhastobedefinedasa largergeographicareathatincludesmostofthesourcesofjobsandincomeandmostofthe shoppingopportunitiesbywhichhouseholdsprovisionthemselves.Economicdevelopmentof thatlargerregionprovideseconomicopportunitiesandimprovedeconomicwellbeingtothe largerregion,includingsmalltownsandruralareas.Thelocaleconomyisanintegratedsetof economicopportunitiesthatlinkspeopletogetheracrossarelativelybroadgeographicregion. Thatdoesnotmeanthatsmalltownsandruralareasarenecessarilyhelplessordependent. Howtheyinteractwiththelargerregionaleconomyandwhatshareofthebenefitstheyobtain fromeconomicdevelopmentacrossthebroadereconomicregionarepartiallydeterminedby actionstakenclosetohome.Wewilldiscussthisinmoredetailbelow.

2.TheDangersoftheEconomicRearViewMirror
Wehavediscussedthelimitationsoftakinganonlyexportsmatterviewofthelocaleconomy anditseconomicpotential.Oneimportantproblemwiththatview(besidesthefactthatitis incompleteandmisleading)isthatitguidesourthinkingaboutthefutureofourcommunities andtheeconomiesthatsupportthemintoaverynarrowsetofopportunitiesthatare increasinglynotveryhopefulintermsofmaintaininglocaleconomicvitality.Inthatsense,the exportbaseapproachpaintsusintoanunproductivecornerintermsoflocaleconomic developmentpolicy. Asdiscussedabove,theexportbaseapproachtowhatitisthatenergizesthelocaleconomy tendstoencourageustolookintotherearviewmirrorandassumethatanyreliableeconomic futuremustlooksomethinglikeoureconomicpast.Ifitwasloggingandforestproducts,metal miningandprocessing,and/oragriculturethatoriginallyallowedtheWesternUpperPeninsula
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tobesettledbyEuropeanAmericans,weshouldstickwiththoseindustriessincetheyaretied toresourcesthatweknowwehaveandthatsupportedourlivelihoodsforlongperiodsinthe past. Alternatively,theeconomicbaseapproachsuggestsweshouldlookforsomethinglikemetal oreextractionandprocessingorforestproducts.Forinstance,ifitisunlikelythatanewmine willbedevelopedsimilartotheWhitePinecoppercomplexinOntonagonCountythatatits peakemployed3,000workers,wecouldtrytorecruitsomeotherindustrialfacility,like automobileorhouseholdapplianceassembly,tolocateintheWesternUpperPeninsula.That sortofsmokestackchasinghasbeenundertakenbytensofthousandsofcommunities,using taxbreaksandsubsidiestoluresuchamanufacturingfacilitytorelocatetotheircommunities. NeitherapproachislikelytobringprosperitytotheWesternUpperPeninsula.Bothapproaches havelosttheircapacitytosupportsustainablecommunityeconomicdevelopment. Traditionallandbasednaturalresourceindustrieshavespentacenturydramaticallyreducing thenumberofworkersneededtomaintainevenasteadilyincreasinglevelofproduction. Agricultureprovidesthemostdramaticexample:Increasedmechanizationandautomationof cropandlivestockproductionhasallowedhighlevelsofproductionwithasteadilyshrinking, almostdisappearing,workforce.Regionsandcommunitiesthatareprimarilyfarmandranch dependenthavebeenlosingpopulationforalmostacentury.Alsomostfarmandranchfamilies relyheavilyonfamilymembersworkingoffthefarminnonagriculturalpursuitstosupport theirlivesonthefarm.Thesamehasbeentrueofmetalminingandprocessingandforest products.Wherethousandsofworkershadpreviouslybeenrequired,nowsimilarlevelsof productionrequireonlyafewhundredor,even,justdozensofworkers. Thischangeinthecontributiontothelocaleconomythataminingprojectcanmakeisobvious whencomparingtheWhitePineMinecomplexinOntonagonCountybetweentheearly1950s andthemid1990swiththeproposedCopperwoodminingprojectproposedfor20miles southwestofWhitePineinGogebicCounty.AtitspeaktheWhitePineMinecomplexemployed 11timesasmanyworkers,3,000workersversus270,andtheoperationlastedover40yearsas opposedtotheprojected13yearsfortheproposedCopperwoodproject.Thecopperoutput perworkerattheWhitePineoperationatitspeakemploymentwas52,000poundsofcopper peryear.Copperwoodisprojectedtoproduce206,000poundsofcopperperworkerperyear, fourtimesasmuch. Asignificantpartofthisdifferenceinapparentlaborproductivityistiedtothefactthatthe WhitePineoperationwasafullyintegratedoperationthatincludedasmelterandrefineryin additiontothemineandconcentrator.Thatis,theWhitePineoperationwascapableof producingrefinedcopperwhiletheproposeCopperwoodprojectwouldonlyproducecopper oreconcentratesthatwouldhavetobeshippedelsewheretobeprocessedintopurecopper. That,ofcourse,requiresanadditionalworkforceelsewhere.Butthejobsassociatedwitha

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contemporarycopperminewillbeonlyabout9percentthesizeoftheearliercopperoperation andthedurationofthatemploymentwouldbeonlyathirdaslong.49 SmokestackChasing,recruitingexistingmanufacturingfacilitiesthroughsubsidiesandtax breakstorelocatetothelocalarea,hasalsobecomeaquestionablestrategy.Althoughoverthe lasthalfcenturymanymanufacturingplantsdidmovefromurbantoruralareas,itwastotake advantageofalowercostlaborsupply.Manyofthosefacilitiesthenmovedontodeveloping countriesinthepursuitofanevenlowercostworkforce.Manyofthosethatremainedinrural areasrecruitedimmigrantworkers,bothlegalandillegalfortheirworkforceratherthanlocal residents.

3.RelyingonOutsideSaviorsVersusLocalEconomicGardening
Bothoftheaboveeconomicstrategiesfocusonsometypecompanycomingintothe communityandputtingresidentstowork.Inthoseapproaches,communityeconomic developmentdependsonanexternalagentbringingeconomicdevelopmenttoanarea.The localcommunityitselfisconceivedofasapassiverecipientofagiftexceptforthereciprocal giftsthecommunitymayhavetogivetothenewcompanytoencourageittolocateinthe community.(Ofcourse,thatexchangeofgiftsoftenleavesambiguousjustwhatthenet balanceofbenefitsisforthecommunity.)Thisassumedcommunitypassivitycanresultinvery littleactuallocaleconomicdevelopmenttakingplacebecausethenewindustrialoperationputs downfewrootsincommunityandapassivedependencyisencouraged,somethingthatisthe oppositeofanentrepreneurialculture.Atitsextreme,thisresultsinacompanytown mentalityinwhichverylittlecommunitybasedeconomicdevelopmenttakesplace.Insteadthe communitywaitsforoneoutsidesaviorafteranothertodeliverafullyformedindustrial facilitytothelocalarea. Analternativetothisstrategyofpassivedependenceinvolvesastrategythatdoesnotwaitfor largeindustrialfacilitiestomagicallyappearinatimelyfashiontomaintainlocaleconomic vitalityandavoidstagnation.Insteadthelocaleconomyisseenashavingitsown entrepreneurialenergythatwithencouragementandmodestsupportcanblossomintoa varietyofsmallenterprisesthathavethecapacitytogrow,interactwithotherlocalbusinesses andthelocalworkforcetoprovideemploymentandincomeopportunities.Inthisvisionof diversifiedorganiceconomicdevelopment,thelocalareaisnotapassiveparticipant.Thesite specificcharacteristicsofthecommunityarecrucialtoencouragingandmaintaininglocal economicvitality:environmentalamenities,bothsocialandnatural,thequalityofthelocal
DataontheCopperwoodProjectisfromtheFeasibilityStudyoftheCopperwoodProject,UpperPeninsula, Michigan,USApreparedfortheOrvanaResourcesUSCorporationbyKDEngineering,March2012,Table22.2, CopperContained.TheinformationontheWhitePineMinecomplexcamefromRidingtheResourceRoller Coaster:AComparisonofSocioeconomicWellBeinginTwoMidwesternMetalMiningCommunities,LisaJ. Wilson,2001,Ph.D.dissertation,UniversityofWisconsinMadison,Figures2.1and2.2,adjustedforthehistorical informationonpage64.
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workforce,schools,publicandprivateinfrastructure,culturalrichnessandopenness, independententrepreneurialspirit,etc. Protectingandenhancingthequalitiesthatmakealocationanattractiveplacetolive,raisea family,anddobusinessbecomescentralnotonlytolocalqualityoflifebutalsotomaintaining andenhancinglocaleconomicvitality.Whatisgoodforlocalqualityoflifealso,often,isgood foravitallocaleconomy.Ratherthantherebeingsometragictradeoffwehavetomake, purposelyacceptingdamagetoourqualityoflifeinordertoencouragesomeonetocreate jobsforus,wecansimultaneouslyimprovebothqualityoflifeandeconomicvitality. Thisisnotaprescriptionforacommunitytopassivelysitbackandwaitforsomethingto happen.Ratheritinvolvesanactivenurturingofexistingbusinessesandsupportfornewstart ups.TheKeweenawEconomicDevelopmentAlliancesaptphraseforthisisanEconomic Gardeningstrategy.50Aproductivegardenrequiresactivemanagementthatunderstands, respects,andsupportsthenaturalsysteminwhichitisembedded.Thesameistrueofavital localeconomy.

4.TheImportanceofQualityofLife,Knowledge,andanEntrepreneurialContext
Thisemphasisonlocalqualitiesascrucialtolocaleconomicvitalityhasrecentlybeendescribed astheruralgrowthtrifecta:outdooramenities,creativeclassandentrepreneurialcontextby oneoftheleadingeconomistswithintheU.S.DepartmentofAgriculture,DavidA. McGranahan.51McGranahanandhiscolleagueshadnoticedthatduringthe1990saboutafifth ofnonmetropolitancountiesgrewfasterthantheaveragerateofgrowthofmetropolitan counties.Thechallengingquestionwaswhy?Whatwasuniqueaboutthoseruralcountiesthat wereshowingconsiderablelocaleconomicvitalitywhilemanyotherruraleconomieswerein declineor,atbest,laggingtherestofthenation? McGranahanandothereconomistssoughttounderstandthesedifferencesinnon metropolitangrowthbycarryingoutastatisticalanalysisofall2,100nonmetropolitan counties.52Thesecountiesoccupy97percentoftheU.S.landarea.Adatabaseoftheobjective characteristicsofeachcountywasdeveloped.Quantifiedmeasuresofenvironmentalquality werealsodeveloped.Thesocial,educational,andracialcharacteristicswereincluded.The relativeimportanceofdifferentindustrieswasquantified.Measuresofpastandpresent
AnEconomicOverviewoftheDevelopmentoftheKeweenawPeninsulaEconomy&ofanEntrepreneurial SupportSystem,PhilMusser,http://kedabiz.com/about.html#historical. 51 DavidA.McGranahan.SeeTheruralgrowthtrifecta:outdooramenities,creativeclassandentrepreneurial context,JournalofEconomicGeography,11(3):529557,2011,DavidA.McGranahan,TimothyR.Wojanand DaytonM.Lambert. 52 Tobeclassifiedasametropolitanareatherehastobeacentralurbanareawithapopulationofatleast50,000 andadjacentterritorythathasahighdegreeofsocialandeconomicintegrationwiththeurbancoreasmeasured bycommutingties.Mostmetropolitanareas(97percentofthem)haveatleast100,000residents.
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economicgrowthandchangewereincluded.Anythingthatmightsignificantlyaffectthe economictrajectoryaruralcountythatcouldbequantifiedwasincluded. Onesetoffeaturesassociatedwithmostofthegrowingnonmetropolitanareaswasthehigh qualitynaturalamenitiesfoundatthoselocationsasmeasuredbyanindexthatincludeda varietyofquantifiablelocalnaturalamenitiesincludingfourdifferentclimatemeasures,varied topography,surfacewaterfeatures,andoutdoorrecreationpotential.McGranahan documentedthestatisticalassociationoftheindexofnaturalamenitieswithruralpopulation growth.53Butthequestionremained,howdidtheselocalamenitiesleadtolocaleconomic vitality?Whatwasthecausalconnection? Typicallytheassumedeconomicmechanismbetweenhighqualitynaturalamenitiesandrural economicvitalityhadbeenassumedtobethroughtourism,commercialoutdoorrecreation, secondhomes,andtheinmigrationofretirees.But,asdiscussedabove,theremaybea broadereconomicconnectionassociatedwiththosenaturalamenitiesdrawingrelatively footlooseeconomicagents,including ownersofsmallcompanies, selfemployedprofessionalsprovidingtechnicalservicestoregionalandnational markets, entrepreneurswhowanttostartbusinessesinplaceswheretheywouldalsoliketolive andraisefamilies,and workerswhoarewillingtosacrificesomeincomeforhigherqualityoflife,effectively providingarelativelowcostandreliablelocallaborsupply. Inordertoquantifytheeconomicimpactthatamenitieswerehavingoneconomic developmentinruralareas,McGranahanandhiscolleaguesfocusedontheinteraction betweenthreecharacteristics: thequalityoflocaloutdoornaturalamenitiesandcommunitysocialamenities thepresenceofskilledprofessionalandtechnicalknowledgeworkers,and theexistenceofalocalentrepreneurialspiritthatleadstoahighdensityofself employment,newsmallstartupcompanies,andaproliferationofnewbusiness establishments. Eachofthesecharacteristicsofthelocalworkforceandthemixofdifferentindustrieswas quantifiedintermsofskilllevels,educationalattainment,andthelevelofautonomousdecision makingassociatedwithdifferenttypesofoccupations.Thecharacteristicsofthetechnology andbusinessorganizationofthefirmsbeingstudiedwerealsoquantified. Thatallowedtheseanalyststostatisticallystudytherelationshipsbetweenthenaturaland recreationalamenities,thecharacteroftheworkforce,andthetypesofbusinessfirmsfoundin
McGranahan,D.A.(1999)NaturalAmenitiesDriveRuralPopulationChange,AER781,EconomicResearch Service,U.S.:DepartmentofAgriculture.Also,McGranahan,D.A.(2008)Landscapeinfluenceonrecentrural migrationintheU.S.,LandscapeandUrbanPlanning:41:197216.
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eachofthese2,100counties.Itwastheanalysisofthecharacteristicsofallofthesecounties andtherelationshipbetweenthosecharacteristicsandthedivergenteconomicvitalityfoundin thecountiesthatledthemtoconcludethatitwasatrifectaoffactors,naturallandscapeand recreationalamenities,highlyskilledknowledgeworkers,andnewentrepreneurialfirms,that weredrivingtheexpansionofemploymentopportunitiesinthoseruralareasthatwerehighin allthreecharacteristics. Theeconomicmechanismtheyidentifiedthatwasatworkinvolvedallofthefollowing: 1. Localareashighinoutdoornaturalamenitiesandcertainsocialandbusinessamenities associatedwithsmallurbanareasattractskilledprofessionalandtechnicalknowledge workerswhopreferthosenaturalandsocialamenitiestothecharacteristicsoflarger metropolitanareas.54 2. Thechoiceofanonmetropolitan,highamenityareaincreasesthelikelihoodthatthese skilledprofessionalswillhavetocreatetheirowneconomicopportunitiessincethatare notmovingtolocationsthatarelikelytohaveexpansiveopportunitiesinalready establishedtechnicalandprofessionalservicessectors.Theactofmoving,itself,isa reflectionofentrepreneurialenergy. 3. Thesenewentrepreneurialeffortsarelikelytodeploytechnologicallyadvanced productionprocessesandtomakeuseofmoresophisticatedanddecentralized managementpracticesthatengagetheirlargelyskilledworkforceinmoreofthe decisionmakingandcontroloftheproductionprocess.Thisfocusonadvanced manufacturingprocessesencouragesinteractionswithinthenewstartupbusiness communityinthesearchforsolutionstoemergingtechnicalandmanagement problems. 4. Theresultisongoinghomegrownlocaleconomicvitalityinnewbusinesssectorsand expandedemploymentopportunities.Areaswithhighqualitynaturalandsocial amenitiesarelikelytobeabletoretainandexpandtheirownlocalworkforce.Thatlocal laborsupplybecomesoneoftheimportanteconomicresourcessupportingthe expandingeconomy.Thehighamenitycharacteristicsalsomakeitpossibletoattract additionalprofessionalandtechnicalpersonnelatrelativelylowcost. Thelocalcommunityclearlyhasaroletoplayinsupportingthistypeofeconomicdevelopment process.Tobeginwith,itneedstoprotectandenhancethenaturalandsocialamenitiesthat
RichardFloridacoinedthephrasecreativeclassforthisgroupofprofessionals.McGranahanhasnarrowedthe definitionofthatgrouptothosemostlikelytomakeentrepreneurialdecisionsandapplieditoutsideofthelarger metroareasonwhichFloridahadfocused.ForFloridasapproachseeTheRiseoftheCreativeClass(NewYork: BasicBooks)2002andCitiesandtheCreativeClass(NewYork:Routledge)2005.ForMcGranahansmodificationof thedefinitionoftheCreativeClassseeAmbientReturns:CreativeCapitalsContributiontoLocalManufacturing Competitiveness,TimothyRWojanandDavidA.McGranahan,AgriculturalandResourceEconomicsReview, 26(1):133148,2007.
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makeitanattractiveplaceforprofessionalandtechnicalworkerstoseekout.Thoseamenities, fromoutdoorrecreationopportunitiesonhighqualitynaturallandscapestogoodschoolsthat aresuccessfullyturningoutskilledandadaptableyoungpeopletorichsocialandcultural institutionsandactivities,improvethequalityoflifeforbothexistingresidentsandinmigrating newresidentsandeconomicactors. Inaddition,thecommunityseconomicdevelopmentagenciescanfocustheireffortson providingmodestsupportforexistingsmallbusinessesandnewstartupbusinesses.Thisisthe economicgardeningapproach:Notrecruitinglargeroutsidefirmstorelocatebutfocusingon economicpotentialsthatarealreadypresent.Theaptlynamednewbusinessincubators carriestheeconomicgardeningmetaphorforward.Manysmallbusinessesfailsimplybecause theyignoredorunderemphasizedsomeofthemostbasicofaccounting,finance,and managementfundamentals.Professionaladvicecanhelpnewstartupsavoidmakingcostly mistakesthatunderminewhatisotherwiseaviablebusinessconcept.

5.EmergingDevelopmentsinAmericanManufacturing
Itmightseemfancifultoimaginethateconomicdevelopmentinanonmetropolitanarealike theWesternUPcouldbegrownfromrelativelysmallstartupcompanies.Butgivenallofthe emptyfactoriesandindustrialparksaroundthenation,especially,intheupperMidwest, joiningthenationalcompetitiontolureabranchfactoryoperationfromonelowcostareato anotherafteryearsofoffshoringandoutsourcingAmericanmanufacturingoperationstolow wagecountriesdoesnotseemaveryrealisticstrategyeither. However,therearechangestakingplaceinboththeUnitedStatesandindevelopingcountries likeChinathatmayleadsomemanufacturingoperationstoshiftbacktotheUnitedStates.One ofthechangesisthatastheChinesehavegrownmoreprosperous,Chinesewageshavegrown substantially.Byonemeasure,indollarterms,theyhaveincreasedfivefoldoverthelast decade.ThoseChinesewagelevelsareexpectedtokeeprisingatdoubledigitratesforthe foreseeablefutureasabroadmiddleclassdevelopsinChina,narrowingthewageadvantageof U.S.manufacturingplantslocatingthere. TheoriginaloptimistichighwagestrategybehindoffshoringalmostallofAmerican manufacturinginvolvedtheassumptionthattheUnitedStateswouldkeepmostofthehigh paidjobs:theproductconception,theresearchanddevelopment,themarketanalysis,the designandengineeringoftheproductanditsmanufacturing,itsretailmarketing,etc.The routineproductionwasallthatwouldbeturnedovertorelativelyunskilledworkersin developingcountries.Althoughthishasbeenaspectacularsuccessintermsofdeveloping Chinasmanufacturingcapacityanddeliveringonetechnologicalmarvelafteranothervery cheaplytoAmericanconsumers,thetenthousandmilesupplychainlinkingproducersand consumershasbecomemoreandmoreproblematic.
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Giventheconstantdevelopmentofnewproductsandupgradesofexistingproducts,ithas becomemoreandmoreimportanttodesignandengineerproducts,producethem,anddeliver themtoretailersveryquickly.Delayscanmeanthelossofashareofthemarketandfailure. Separatingtheinnovatingdesignersandengineersfromtheproductionlineandsupplychainof componentscanleadtodelays,lowerproductionlineproductivity,deteriorationofquality,and difficultyinadaptingtochangingconsumerpreferencesandcompetition.Asspeedin innovating,design,productionanddeliverytocustomershasbecomecrucialforeffective competitionandmarketing,separatingoperationsthatneedtobecloselyintegratedhas becomedysfunctionalandcostly. Asaresult,Americanfirmsarebeginningtoreintegratetheiroperationsclosertotheirultimate customers,i.e.theyhavebeguntoexploreinsourcingortherepatriationofthe manufacturingofcomponentsandassemblyoftheproduct.Thepersondesigninganew productoraproductthatisconstantlybeingredesignedcannotberemovedfromthe productionlineiftheproductisgoingtobeproducedcheaplywithreliablequalityandmeet thedesignersandcustomersexpectations.Shippingproductshalfwayaroundtheworldby truck,rail,andboatalsoaddsdelaysthatcanbecostlyinthecompetitionforcustomers. Finally,tradesecretsandproductdesignarehardtoprotectwhenallofthedetailsof manufacturingaproductareturnedovertoasetofindependentfactoriesandsuppliersover whichthenominalproducerhasonlylimitedcontrol.Theopportunityforknockoffsubstitute productsquicklyfloodingthemarketisgreatlyenhanced. Inanycase,thereintegrationofdesignandengineeringwiththeactualmanufacturingof componentsandassemblyoftheproductisbringingrelativelysmallscalemanufacturingback totheUnitedStates,oneproductatatime,Observersbelievethatthiswillultimatelyrebuild, albeitonasmallerscaleandwithahigherskilllevel,amanufacturingbaseintheUnitedStates. Thatrepresentanewsetofeconomicdevelopmentopportunitiesforcertaintypesof communities.55

6.TheWesternUpperPeninsulaandthePotentialforEconomicGardening
EmpiricalanalysisoftheHoughtonKeweenawregionindicatesthatlocaleconomicgardening hasasignificantpotential.QuantitativecomparisonoftheHoughtonKeweenawAreawiththe growingnonmetropolitancountiesnationwideindicatesthatatleastthreeoftheprerequisite characteristicsarealreadypresent:thenaturaloutdooramenities,theconcentrationsof professionalandtechnicalworkers,andthepresenceofsignificanturbanareas(Houghton HancockandIronwood).
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See,forinstance,TheInsourcingBoom,CharlesFishman,TheAtlantic,December2012,pp.4552.AlsoMr. ChinaComestoAmerica,JamesFallows,TheAtlantic,December2012,pp.5466.

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Keweenaw,Houghton,andOntonagonCountiesmakeuponesetofcontiguouscountiesthat wereinthetopquarterofallU.S.nonmetropolitancountiesintermsofthequalityofoutdoor amenities.GogebicandBaragaCountieswereinthetophalfofU.S.nonmetrocounties accordingtothatindex.IronandVilasCountiesjustacrossthestatelinefromGogebicCounty werealsointhetopquarter.SeeFigureWbelow.

FigureW.

outdooramenities.UpperGreat MapofU.S.ruralcountiesrankedby al.2011,Figure2. Lakesexcerpt.FromMcGranahanet Intermsofconcentrationsofprofessionaltechnicalknowledgeorcreativeworkers, HoughtonCountyisinthetop5percentofallU.S.nonmetropolitancountiesintermsofthe densityofthesecreativeworkers.AdjacentKeweenawCountyisinthetopquarter.Gogebic Countywasalsointhetopquarterofnonmetropolitancountiesasweretheadjacentcounties acrossthestatelineinWisconsin:Iron,Vilas,andOneida.SeeFigureXbelow.

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FigureX.

TheKeweenawEconomicDevelopmentAlliance(KEDA)hasalsorecognizedtheeconomic potentialrepresentedbythiscombinationofaconcentrationofprofessional/technicalworkers, avibranturbancenterthatisalsohometotwoinstitutionsofhighereducation,andthehigh qualityoflifeassociatedwiththeUpperPeninsulaLakeSuperiorlocation.Asmentioned above,KEDAhasadoptedaneconomicgardeningapproachfocusingoncreatingabusiness supportsystemfortechnologyfirms,includinghightechincubatorsandcustomizedbusiness assistance.KEDAhasexperiencedtechnologycommercializationprofessionalsonstaffto provideassistancesatitsthreetechnologyincubatorfacilities. KEDAreportsinitialsuccess: Sincestartup,atechnologysectorof3540companieshasbeencreated through:thespinoffofresearchproductsdevelopedatMichiganTechnological University;therelocationofhightechfirmswantingtohaveaccesstothe
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Professional/TechnicalOccupations(CreativeClass)as shareoftotalworkforceinU.S.nonmetropolitancounties, 2000.ExcerptfromU.S.map.FromWojanandMcGranahan 2007, Figure 1.

technologicalresourcesoftheUniversityandwantingtoenjoyaruralqualityof life;andthedecisionbyestablishedtechnologycompaniesmorerecently,GE AviationandGrandRapidsbasedDematictolocatebranchofficesinthe KeweenawtohaveimmediateaccesstoMichiganTechgraduates,manyof whomprefertoremaininthelocalareafollowinggraduation.56 ThisKEDAexampleemphasizestheinteractionwithalocaltechnicaluniversity.Obviously MichiganTechandtheGreaterHoughtonsstatusasacollegetownisanimportantassetinthe WesternUPsgenerallyruralsetting.Itcanonlyaddtothepotentialforthetypeofrural growththatbothKEDAandMcGranahanhavelinkedtoacriticalmassofprofessionaltechnical workers,andanentrepreneurialculture. Thebroaderconclusionisthatqualityoflifematterseconomically:protectingnatural landscapes,airandwaterquality,wildlife,andrecreationalopportunitiesprotectsanimportant partofalocaleseconomicbase.Similarlywithurbanandcommunityamenities:goodschools, attractivepublicspaces,diverseandinterestingcultureandculturalopportunities.An independentandactivebusinessandnonprofitcommunityisalsoimportantinsupporting entrepreneurialactivity. Miningandmilltownshavethepotentialtounderminemostoftheseimportantlocalqualities bothbecausetheyarelandandnaturalresourceintensive,potentially,seriously,even permanently,degradingthem.Theuncertaintyandvolatilityassociatedwithmetalminingand processingalsocreateseconomicinsecuritythatcanunderminecommunity,leadingtolong commutesandsignificantleakageofpayrolloutofthecommunity.Thatuncertaintycanalso discourageinvestmentinthecommunityandacertainlevelofpassivenessorfatalismwhich doesnotsupportentrepreneurialactivity.Instead,acompanytownmentalityofpassive dependencemayemerge. Somemayfindtheeconomicgardeningapproachtolocaleconomicdevelopmentfartoo slowandploddingcomparedtothatimaginarymineormillorfactoryemployingthousandsof workersthatsomeonewiththepowersofaneconomicmagiciancancausetoparachuteoutof theskyandlandinanygivencommunity.Easycome;easygo,shouldbekeptinmind.Such economictransplantsoftendonotsetdownanyrootsinthecommunityanddrawlittleonthe communityforworkersorsupplies.Becauseofthosefootloosecharacteristics,suchfacilities candisappearasquicklyastheyarrived,leaving,however,environmentalandsocialdisruption intheirwake.Theindustrialtransplantapproachmayappeartobeamuchfasterrouteto economicdevelopment,butsuchtransplantsmaynotinvolvehardlyanydevelopmentinthe senseoftransformingthecommunityandeconomyinpermanentandpositivewayswhile developingintoanintegralpartofthatcommunity.Thatsortofeconomicrelationshiptypically hastogrowinandwiththecommunity.Itisnodoubtslowerthanwhataneconomicmagician mightbeimaginedtodo,butitisalsomoresteady,morecompatiblewithacommunity's
PhilMusser,AnEconomicOverviewoftheDevelopmentoftheKeweenawPeninsulaEconomy&ofan EntrepreneurialSupportSystem,KeweenawEconomicDevelopmentAlliance,p.3.Undated.
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identity,respectfulofasenseofplace,andmorelikelytohaveapositiveandenduring,if changing,impactonthecommunity.

7.LookingBeyondtheHoughtonHancockArea
TheexampleaboveofaneconomicgardeningstrategybeingappliedintheWesternUPfocused onsomecharacteristicsthatarerelativelyuniquetotheHoughtonarea:Thepresenceofatwo universitiesincludingatechnologicaluniversityandthespecializedknowledgeworkersa universitytownattracts.RuralcountiessuchasOntonagonandBaragathataremoreruralin characterdonothavethesecharacteristicsandeventhemoreurbanIronwoodareainGogebic County,despitehavingacommunitycollege,isnotreallyauniversitytown.Giventhe emphasisintheHoughtonareaexampleonhighdensitiesofknowledgeworkers57,technically orientedentrepreneurs,anduniversityconnections,theparticulareconomicgardening developmentstrategydiscussedmayappeartobelargelyinapplicabletotherestofthe WesternUP. Butsuchaconclusionwouldbebasedonthefalseassumptionthateconomicdevelopment involvesallpartsofaregionplayingthesameroleintheongoingeconomicchangetaking place.Asdiscussedearlier,theWesternUPneedstobethoughtofasanintegratedeconomyin whichdifferentareasanddifferenteconomicactorsplaydifferentroles.Everyonedoesnot imitateeveryoneelse.Thatwouldbetheoppositeofentrepreneurialbehavior.Similarly,there isasharedinterdependency,notaonewaycolonialdependence. MostoftheWesternUPdoeshaveoneofthecharacteristicsemphasizedintheaboveexample ofeconomicgardeningintheHoughtonarea,thehighqualityrecreationalopportunities associatedwithLakeSuperiorandtheregionsmountains,forests,rivers,andwetlands. Inadditionmostofourstudyareaiswithincommutingdistanceofanurbantradecenter: HoughtonHancock,Ironwood,andMarquette.Ifonedraws50mileradiuscirclesaround Ironwood,Houghton,andMarquette,thosecommutingrangestakeinmostofourfivecounty studyarea.SeeFigureYbelow. ItshouldalsobenotedthatthereisauniversityinMarquetteaswellascommunitycollegesin IronwoodandBaraga.Theseprovideculturalcenters,technicaltraining,andpotentialbusiness spinoffs.

Knowledgeworkerisatermthathasbeencoinedtorefertoworkerswhoseprimarytaskisnonroutine problemsolving.Typicalexamplesincludesoftwareengineers,architects,engineers,scientistsandlawyers.A shorthanddefinitionmightbeworkerswhothinkforaliving.(ThomasH.Davenport,ThinkingforaLiving, HarvardBusinessPress,2005)Thedegreeoforiginalthinkingorcreativeworknecessarytobeincludedinthis categorycontinuestobediscussedanddebated.

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Thesmallertownsandruralareasinourstudyareacanparticipateinregionaleconomic developmentbyplayingtotheirstrengthsandprotectingtheirattractivenessasaplacefor peopletolive,raiseafamily,andstartabusiness.Thatmeansprotectingtheoutdoor recreationalassetsassociatedwiththearea.Thiscreatesthepotentialforattractingvisitors fromthesurroundingurbanareasaswellasattractingnewresidentswhoprefertoliveina smalltownorruralsetting.Thesmallertownsandruralareasneedtoalsoprotectotherpublic amenitiesincludingthequalityofschools,municipalandstateparks,thesafetyand convenienceofroads,andgeneralresponsivenesstovisitingandresidentrecreationists. Supportfornewbusinessesthatseektoassistpeopleinenjoyingtherecreationopportunities isalsoimportant.
FigureY.

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 Theeconomicgardeningprinciplesapplyoutsideoftheregionaltradecentersinthesameway theyapplywithinthoseurbancenters.Thegeneralprincipleistomaintainanddevelopthe attractivecharacteristicsofeachareaaswellastosupporttheentrepreneurswhoareworking atmorefullydevelopingtheeconomicpotentialsofthearea.Thesmalltownsandruralareas provideacomplementarysetofeconomicactivitiesthatsupportpeoplewhowanttoliveinan exurbansettingwhilecontinuingtoenjoyreadyaccesstourbanamenities.Thosesmalltowns andruralareasalsoenrichthelivesoftheurbanresidentsbymaintainingtherecreation infrastructurethatallowsthoseurbanresidentstoeasilyenjoytherecreationalopportunities. Ofcourse,theurbantradecentersalsoprovideurbanamenitiestoruralresidents:cultural events,entertainment,diverserestaurants,aswellasabroaderrangeofprofessionalservices. Thaturbanruralinterdependenceallowsasymbioticrelationshipthatsharesthefruitsof regionaleconomicdevelopment.

8.ThePlaceofMetalOreMiningandProcessingintheWesternUP
Metalmininghashistoricallycausedconsiderableenvironmentaldamage.However,eachnew proposedmineconfidentlyassertsthatthistimeitwillbedifferent.Promisesaremadethat newtechnologieswillbedeployedthatwillmeetthemorestringentenvironmentalstandards thatareinplacetoday.Butthathasrarelyprovedtobetrue. Arecentreviewofprojectedwaterqualityassociatedwithmetalminesbeforethosemines weredevelopedwiththewaterqualitythatactuallyresultedfromthemineduringandafter operationsindicatedthatdespiteprojectionsthatwiththepollutioncontrolmeasuresinplace therewouldbenoviolationofwaterqualitystandards,52percentofthecasestudymines clearlyhadminingrelatedexceedancesofstandardsforsurfacewatersurfacewaterquality. Thesamewastrueofprojectionsthatgroundwaterpollutionwouldbeeffectivelycontrolled: mostminespredictnoimpactstogroundwaterqualityaftermitigationwasinplace,butin themajorityofcasestudymines,impactshaveoccurredtheamelioratingeffectofmitigation ongroundwaterqualitywasoverestimatedinthemajorityofthecasestudymines.76 percentofthecasestudymineshadminingrelatedexceedancesinsurfacewateror groundwater.58 Theoverlyoptimisticprojectionsduringenvironmentalpermittingbeforeminingbeganwere duetoseveralproblems:
ComparisonofPredictedandActualWaterQualityatHardrockMines:TheReliabilityofPredictionsin EnvironmentalImpactStatements,JamesR.Kuipers,etal.Kuipers&AssociatesandBukaEnvironmental,2006,p. ES8and9.Itshouldbepointedoutthatthisstudyalsoconcludedthatproximitytowaterresourcesincluding dischargesfromthemineandmoderatetohighaciddrainageorcontaminantleachingpotentialsignificantly increasedtheriskofwaterqualityimpactandwasagoodindicatoroffutureadversewaterqualityimpacts.(p.ES 12)
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i. thegeochemicalcharacteroftheoresurroundingrockwasnotaccuratelyestablished; ii. thehydrologicalconditionsattheminewerenotaccuratelycharacterized;and iii. theproposedpollutioncontroltechnologiesdidnotperformasprojected.59 Itwouldnotbesurprisingiftheenvironmentalanalysisoftheminingcompaniestendedtobe overlyoptimisticaboutriskofseriousenvironmentalimpacts.However,manyofthesestudies weredoneforgovernmentagenciesbywhatweresupposedtobeindependentcontractors. Thereappearstohavebeenaconspiracyofoptimismthataffectedallmetalmineanalysts whenitcametohowwellfutureminesandenvironmentalcontrolswouldoperate. Thisrecentpastperformanceofmetalminesunderlinesthenecessityofextremelycareful analysisbeforeametalmineispermittedandtheneedtobeverycautiousandskepticalof assertionsofnearzeroairandwateremissions. Giventheincreasingimportanceoflocallandscapeamenitiesissupportingnonmetropolitan economicvitality,thepotentiallongtermenvironmentaldamageassociatedwithmetalmining hastobeverycarefullyconsidered. Alsogiventhemuchlowerlocaleconomicpayoffassociatedwithmetalminingbecauseofthe deploymentoflabordisplacingtechnologythathasdramaticallyreducedthenumberofjobs createdandthemuchshorterlivesofcontemporarymetalmines,thepublicbenefitcostratio hasdeclinedsignificantly.WhentheactualhistoricalexperienceintheWesternUPandacross Americasminingdistrictswithridingtheminingrollercoasterthroughtheboomsandbusts isalsoconsidered,theriskofeconomicandsocialdisruptionhastobeincludedinthepublic economicevaluationtoo. Metalminingdoesnot,ingeneral,presentacommunitywithacostlesssourceofhighhigh payingjobs.Metalminingproposalsarenoteconomicoffersthat,generally,aretoogoodto refuse.Metalminingisalmostalwaysaccompaniedbyeconomiccoststhatcanimposelong termburdensoncommunities.Forthatreason,communitiesmustcarefullyandcritically evaluatethenetimpactofsuchminesonthelongtermhealthandvitalityofthelocal economy. Ouranalysisinthisreporthasdocumentedallofthefollowing: i. Therearesignificantcostsassociatedwithminingactivitiesthattendtooffsetthe positiveimpactsofthehighpayassociatedwithminingjobs. ii. TheeconomiesoftheWesternUpperPeninsulahavebeensuccessfullytransitioning awayfrompastrelianceonunstablelandbased,exportorientedeconomicactivities.
59

Ibid.p.ES13

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iii. Theattractivenessofaplaceintermsofitssocialandnaturalamenitiesisanimportant partofthatplaceseconomicbaseandfutureeconomicvitality. iv. Forthatreason,economicactivitiesthatdamagethoseattractivelocalcharacteristics areincompatiblewiththecurrentsourcesofeconomicvitalityand,ifallowedto develop,willdisplaceotherimportanteconomicactivitiesintheregion. v. TheWesternUpperPeninsulahasbeguntodevelopaclusterofentrepreneurial manufacturingfirmsbuildaroundsocialandculturalassets,hightechknowledge workers,attractivesmallurbanareas,andhighqualityrecreationalamenities. Forallofthesereasons,itisourprofessionaljudgmentthatareturntorelianceonmetalore miningandprocessingintheWesternUpperPeninsulawoulddamage,notimprove,regional economicwellbeingandvitality.Instead,theeconomicdevelopmentfocusshouldcontinueto beonlocaleconomicgardeningandfurtherdevelopingtheeconomictrendsalreadyunder way.

9.Summary
Themostcommontypeofeconomicdevelopmentstrategyurgedoncommunitiesistogo searchingforlargecompaniesandtrytolurethemintolocatinginyourcommunity,thus puttingresidentstoworkat,hopefully,relativelyhighwages.Inthatapproach,community economicdevelopmentdependsonanexternalagentbringingeconomicdevelopmenttoan area.Thelocalcommunityitselfisconceivedofasapassiverecipientofagiftexceptforthe reciprocalgiftsthecommunitymayhavetogivetothenewcompanytoencourageittolocate inthecommunity.Thisassumedcommunitypassivitycanresultinverylittleactuallocal economicdevelopmenttakingplacebecausethenewindustrialoperationputsdownfewroots inthecommunityandapassivedependencyisencouraged,somethingthatistheoppositeof anentrepreneurialculture.Atitsextreme,thisresultsinacompanytownmentalityinwhich verylittlecommunitybasedeconomicdevelopmenttakesplace.Insteadthecommunitywaits foroneoutsidesaviorafteranothertodeliverafullyformedindustrialfacilitytothelocal area. Incontrasttothisstrategyofpassivedependenceisanalternativestrategythatdoesnotwait forlargeindustrialfacilitiestomagicallyappearinatimelyfashiontomaintainlocaleconomic vitalityandavoidstagnation.Insteadthelocaleconomyisseenashavingitsown entrepreneurialenergythatwithencouragementandmodestsupportcanblossomintoa varietyofsmallenterprisesthathavethecapacitytogrow,interactwithotherlocalbusinesses andthelocalworkforcetoprovideemploymentandincomeopportunities.Inthisvisionof diversifiedorganiceconomicdevelopment,thelocalareaisnotapassiveparticipant.Thesite specificcharacteristicsofthecommunityarecrucialtoencouragingandmaintaininglocal economicvitality:environmentalamenities,bothsocialandnatural,thequalityofthelocal workforce,schools,publicandprivateinfrastructure,culturalrichnessandopenness, independententrepreneurialspirit,etc.
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 Protectingandenhancingthequalitiesthatmakealocationanattractiveplacetolive,raisea family,anddobusinessbecomescentralnotonlytolocalqualityoflifebutalsotomaintaining andenhancinglocaleconomicvitality.Whatisgoodforlocalqualityoflifealso,often,isgood foravitallocaleconomy.Ratherthantherebeingsometragictradeoffwehavetomake, purposelyacceptingdamagetoourqualityoflifeinordertoencouragesomeonetocreate jobsforus,wecansimultaneouslyimprovebothqualityoflifeandeconomicvitality. Thisisnotaprescriptionforacommunitytopassivelysitbackandwaitforsomethingto happen.Ratheritinvolvesanactivenurturingofexistingbusinessesandsupportfornewstart ups.TheKeweenawEconomicDevelopmentAlliancesaptphraseforthisisanEconomic Gardeningstrategy.Aproductivegardenrequiresactivemanagementthatunderstands, respects,andsupportsthenaturalsysteminwhichitisembedded.Thesameistrueofavital localeconomy. EmpiricalanalysisoftheWesternUPindicatesthatlocaleconomicgardeninghasasignificant potentialtosustainregionaleconomicdevelopment.QuantitativecomparisonoftheWestern UPwithgrowingnonmetropolitancountiesnationwideindicatesthatatleastthreeofthe requisitecharacteristicsarealreadypresent:thenaturaloutdooramenities,theconcentrations ofprofessionalandtechnicalworkers,andthepresenceofsignificanturbanareas(Houghton HancockandIronwood). Keweenaw,Houghton,andOntonagonCountiesmakeuponesetofcontiguouscountiesthat wereinthetopquarterofallU.S.nonmetropolitancountiesintermsofthequalityofoutdoor amenities.GogebicandBaragaCountieswereinthetophalfofU.S.nonmetrocounties accordingtothatindex.IronandVilasCountiesjustacrossthestatelinefromGogebicCounty werealsointhetopquarter. Intermsofconcentrationsofprofessionaltechnicalknowledgeorcreativeworkers, HoughtonCountyisinthetop5percentofallU.S.nonmetropolitancountiesintermsofthe densityofthesecreativeworkers.AdjacentKeweenawCountyisinthetopquarter.Gogebic Countywasalsointhetopquarterofnonmetropolitancountiesasweretheadjacentcounties acrossthestatelineinWisconsin:Iron,Vilas,andOneida. TheKeweenawEconomicDevelopmentAlliance(KEDA)hasalsorecognizedtheeconomic potentialrepresentedbythiscombinationofaconcentrationofprofessional/technicalworkers, avibranturbancenterthatisalsohometotwoinstitutionsofhighereducation,andthehigh qualityoflifeassociatedwiththeUpperPeninsulaLakeSuperiorlocation.KEDAhasadopted aneconomicgardeningapproachfocusingoncreatingabusinesssupportsystemfor technologyfirms,includinghightechincubatorsandcustomizedbusinessassistance.KEDAhas experiencedtechnologycommercializationprofessionalsonstafftoprovideassistanceatits threetechnologyincubatorfacilities.KEDAreportsinitialsuccessinthiseconomicdevelopment strategy.
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Butthegeneralideaofeconomicgardeningisnotlimitedtolargerurbanareaswith universities.Italsoappliestothesurroundingsmalltownsandruralareasthatcantake advantageoftheirproximitytolargerurbancenterstobothproviderecreationandother servicestourbanresidentsaswellasanattractivequalityoflifetothosewhofindmoredense urbansettlementslessattractive.Inturn,theproximityofthelargerurbancentersallows residentsofsmallertownsandruralareastohavetheircakeandeatittoo:enjoyarurallife stylewhilealsohavingaccesstourbanamenitiesandeconomicopportunities. Qualityoflifematterseconomically:protectingnaturallandscapes,airandwaterquality, wildlife,andrecreationalopportunitiesprotectsanimportantpartofalocaleseconomicbase. Similarlywithurbanandcommunityamenities:goodschools,attractivepublicspaces,diverse andinterestingcultureandculturalopportunities.Anindependentandactivebusinessand nonprofitcommunityisalsoimportantinsupportingentrepreneurialactivity. Miningandmilltownshavethepotentialtounderminemostoftheseimportantlocalqualities bothbecausetheyarelandandnaturalresourceintensive,seriously,evenpermanently degradingthem.Theuncertaintyandvolatilityassociatedwithmetalminingandprocessing alsocreateseconomicinsecuritythatcanunderminecommunity,leadingtolongcommutes andsignificantleakageofpayrolloutofthecommunity.Thatuncertaintycanalsodiscourage investmentinthecommunityandacertainlevelofpassivenessorfatalismwhichdoesnot supportentrepreneurialactivity.Instead,acompanytownmentalityofpassivedependence canemerge. Alsogiventhemuchlowerlocaleconomicpayoffassociatedwithmetalminingbecauseofthe deploymentoflabordisplacingtechnologythathasdramaticallyreducedthenumberofjobs createdandthemuchshorterlivesofcontemporarymetalmines,thepublicbenefitcostratio hasdeclinedsignificantly.WhentheactualhistoricalexperienceintheWesternUPandacross Americasminingdistrictswithridingtheminingrollercoasterthroughtheboomsandbusts isalsoconsidered,theriskofeconomicandsocialdisruptionhastobeincludedinthepublic economicevaluationtoo. Ouranalysisinthisreporthasdocumentedallofthefollowing: i. Therearesignificantcostsassociatedwithminingactivitiesthattendtooffsetthe positiveimpactsofthehighpayassociatedwithminingjobs. ii. TheeconomiesoftheWesternUPhavebeensuccessfullytransitioningawayfrompast relianceonunstablelandbased,exportorientedeconomicactivities. iii. Theattractivenessofaplaceintermsofitssocialandnaturalamenitiesisanimportant partofthatplaceseconomicbaseandfutureeconomicvitality. iv. Forthatreason,economicactivitiesthatdamagethoseattractivelocalcharacteristics areincompatiblewiththecurrentsourcesofeconomicvitalityand,ifallowedto develop,willdisplaceotherimportanteconomicactivitiesintheregion.

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v. TheWesternUPhasbeguntodevelopaclusterofentrepreneurialmanufacturingfirms builtaroundsocialandculturalassets,hightechknowledgeworkers,attractive smallurbanareas,andhighqualityrecreationalamenities. Forallofthesereasons,itisourprofessionaljudgmentthatareturntometalore miningandprocessingintheWesternUPwoulddamage,notimprove,regionaleconomicwell beingandvitality.Instead,theeconomicdevelopmentfocusshouldcontinuetobeonlocal economicgardeningandfurtherdevelopingthepositiveeconomictrendsalreadyunderway.

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Wojan,T.,McGranahan,D.AmbientReturns:CreativeCapitalsContributiontoLocal ManufacturingCompetitiveness.AgriculturalandResourceEconomicsReview,26(1):133148. 2007.

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AppendixA:QuestionsandAnswersontheRoleofMetalMininginthe DevelopmentoftheWesternUpperPeninsulaEconomy
Q. Inadditiontocopper,othermetalssuchasnickel,silver,gold,andplatinumgroup elementsmaybeinvolvedinnewminingintheWesternUpperPeninsula.Howwouldthe conclusionsexpressedinthisreportdifferinthecaseof,forexample,adepositthat containedbothnickelandcopperasprimarymetals,insulfideform? A. Therelativesizeoftheimpactwouldbesimilarregardlessofthetypeofmetalbeing mined.Theimpactwouldlargelybeproportionaltothesizeoftheworkforceandthe plannedleveloforeproductionandconcentration.Twothingscouldchangethis.First mostminingproposalsinvolveextractingrelativelylowgradeores,concentratingthe ores,andshippingthemsomewhereelseforsmeltingorrefining.Ifsmeltingandrefining wereproposedtotakeplaceintheWesternUPboththeemploymentandenvironmental impactswouldbehigher.Second,iftheoresbeingminedaresulfideores,therearelikely tobegreaterenvironmentalimpactsinboththeshortandlongrun. Q. Sincemininggenerallypayshighwagesbybluecollarstandards,whyaremining communitiesofteninpooreconomicshape? A. Therearefiveprimaryreasons: i Fluctuationsinthedemandforandpriceofthemineralonnationaland internationalmarketscauseinstabilityinmineproduction,employment,and payroll.Thatuncertaintyaboutthereliabilityofthejobsandpayrolldamagethe localeconomy. ii Theimpactofongoinglabordisplacingtechnologicalchangeisconstantly reducingtheworkforcerequiredforanygivenlevelofmineproduction.Actual employmentfallsovertime. iii Mineemployeesareverymobile,commutinglongdistancetoworkwhile maintainingtheirresidencesoutsideoftheareaimmediatelyimpactedbythe miningandmilling.Thisleadsmuchoftheminingpayrolltoleakoutofthe regionimmediatelyaroundthemine. iv Mines,ultimately,alwaysdepletetheireconomicallyviableoredepositsand shutdown.Theaveragelifeofametalminehasdeclinedsignificantlyinrecent decades.Forinstance,thecopperminingactivitiesinButte,Montana,have lasted125years,albeit,employingadrasticallyreducedworkforce.TheWhite Pinemineoperatedforalmost45years.ButtheproposedCopperwoodproject inGogebicCountyisestimatedtolast13years.
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Miningislandintensiveandasaresulthasnearlypermanentimpactsonthe naturalenvironment.Environmentaldegradationcansignificantlyreducethe attractivenessofaminingareaasaplacetolive,work,andraiseafamily.That underminesoneofthemostimportantsourcesoflocaleconomicvitality.

Q. How,ingeneral,dominingdependentcountiesdifferfromruralcountiesthatarenot miningdependent,fromaneconomicstandpoint? A. Mostmeasuresoflocaleconomicvitalityarelowerinminingdependentcommunities. i. Populationgrowthissignificantlyslower ii. Growthinthetotalincomeavailabletoresidentsisslower. iii. Growthandlevelofaverageincomeperpersonisslower. iv. Unemploymentratestendtobehigher. v. Entrepreneurialenergyislowerincompanytowns. vi. Povertyratesandmeasuresofsocialdysfunctionarelikelytobehigher. Q. Eveninareaswhereminingisgoingoncontinuously,unemploymentratesareoftenhigh. Why? A. Becauseoffluctuatingdemandforthemineralsbeingmined,mineworkersfaceregular layoffsuntildemandbouncesback.Inaddition,labordisplacingtechnologicalchange constantlyreducesaminesdemandforworkers.Finally,theveryhighwagespaidin miningdrawanexcessofpotentialmineworkershopingtogetoneofthehighpaying jobs.Inaddition,peoplelaidoffbytheminedonotsearchforotherjobsbecausethepay issomemuchlowerinanyotherjob. Q. Diverseeconomiesareoftenhealthyeconomies.Arediverseeconomiesoftenpresentin areaswithextensivemining?Ifnot,whynot? A. Miningtendstodisplaceothertypesofeconomicactivity.Theenvironmentaldamage discouragestheinmigrationofnewresidentsandbusinessesandthegrowthofthe visitoreconomy.Thehigherwagesinminingdrawworkersawayfromotherjobs,making itmorecostlyforotherlocalbusinessestoobtaintheworkforcetheyneed.Theeconomic uncertaintyaboutjobsandpayrollsdiscouragesinvestmentsinnewbusinessesbecause theuncertaintyaboutfuturesspendingbyminingfamilies.Finally,dominantindustries tendtoencouragealevelofpassivitythatunderminestheentrepreneurialenergy necessaryforsuccessfulstartupcompanies. Q. HascopperminingintheWesternUPgenerallyledtoeconomicstability?Whynot? A. CopperminingintheWesternUPhasgonethroughthesameboom/bustcyclesthat copperminingacrosstheUShasgonethrough.Thelastmajorcopperminingboominthe WesternUPatWhitePinepeakedinthemid1970sandthenbythemid1980shad almostcompletelyshutdown.Itstagedarecoveryinthelate1980sandthenshutdown
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permanentlyinthemid1990.Theseboomsandbustsdisruptedthelocaleconomyand thecommunitiesinwhichtheminerslived. Q. IsitlikelythatthemineralrichesoftheWesternUPthatareexploitedinfuturemining willlargelybenefitlocalcommunitiesorlargelybenefitminingcompaniesandtheir shareholders? Ofthemineralrichescreatedonlyoneinsevenofthedollarvalueoftheorewillflowto workersatthemine.Abouthalfofthatvaluewillflowtotheownersofthemineand mineralsintheformofroyalties,rent,dividends,profit,etc.Aboutaquarterwillpayfor equipmentandsuppliesnecessarytorunthemine.Thepaymentstoownersarelikelyto flowoutofthelocalarea.GiventheruralcharacteroftheWesternUP,mostofthe equipmentandsuppliesthemineneedswillhavetobeimported.Eventhewagespaidto workersarelikelytoflowoutoftheimmediateareaoftheminebecauseofthemobility ofminersandtheirtendencytoliveatsomedistancefromthemine. Isthereaminingscenariothatwouldprovideforstableeconomicgrowth? Notaslongasthemineralsproducedaresoldintoworldwidemarketswheresupplyand demandfluctuate.Fluctuatingdemand,prices,employment,andpayrollarepartofthe marketsettinginwhichminingtakesplace. InthecaseoftheWhitePineMine,didhighminingrelatedwageslargelybenefit OntonagonCounty?Ifnot,whynot? No.OnlyaboutafifthoftheworkforcelivedinthetownofWhitePine.Overhalfofallthe workerslivedoutsideofOntonagonCounty.InadditionWhitePineandOntonagon Countydidnothavethemixofbusinessesthatcouldsupplytheworkersandtheir families.Asaresult,muchoftheincomeearnedbyworkerswhodidliveinthecounty flowedouttolargertradecentersratherthancirculatinginthelocaleconomy. Thepriceofcopperlargelydeterminestheeconomicviabilityofacoppermine.What mighthappenifaminingcompanyisdependingonacertaincopperpriceforeconomic viabilitybutthatcopperpricedropsbelowacriticalvalue?IstheproposedCopperwood MineinGogebicCountyhighlydependentonthepriceofcopper?

A.

Q. A.

Q. A.

Q.

A. ThefeasibilitystudiesdonebyindependentanalystsontheCopperwoodMine emphasizedthatthefinancialviabilityoftheminedependedentirelyonhighcopper pricescontinuing.Overthelastcentury,copperpricesin2012dollarswerebelowthe levelrequiredfortheCopperwoodMinetobefeasible. Q. Nationwide,isminingemploymentrisingordeclining?Why?Doesitgenerallymake goodeconomicsenseforacommunitytodependonanindustrywithatrendof decreasingemploymentopportunities?

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 A.

Asaresultoflabordisplacingtechnologicalchange,employmentinmininghasdeclined eveninminesthathavecontinuedtooperate.Between1999and2010mining employment(excludingoilandgas)hasdeclinednationwidefrom235,000jobsto 205,000jobs.TheWhitePineMine,atitspeak,employed3,000workers.Theproposed CopperwoodMineisexpectedtoemploylessthanatenthofthat,273workers.For communitiesdependentonmining,thismeansanongoingdepressingeffectonthe overalleconomy. HowdidtheclosureoftheWhitePineMineaffecttheOntonagonCountyeconomy? Thechangesincludedallofthefollowing i. About2,500jobs,over40percentofallthejobsinOntonagonCounty,werelost between1975and1985. ii. About$200millioninpayroll(in2012dollars)waslost. iii. OntonagonCountylost4,600residents,about40percentofits1976population. iv. Becausepopulationdeclinedfasterthanincomedeclined,averageincomeper person(ininflationadjustedterms)grewaboutasmuchasitdidnationwide. v. BecauseonlyhalfoftheworkersatthemineworkedinOntonagonCounty,the impactofthemineshutdownwasdistributedoverawidegeographicareajustas theearlierimpactoftheminesoperationhadbeen. Inasmallruralcounty,isitlikelythatmostmineworkerswouldliveinthatcountyand spendtheirpaycheckslargelyinthatcounty? No.Minersareverymobile.Somecommuteinfromdistantresidences.Otherminers leavetheirfamiliesattheirpermanentresidenceshundredsofmilesawayand temporarilyrelocate,sendingtheirpaycheckbacktotheirfamilies.Inaddition,ruralareas oftendonothavethefullsetofbusinessestosupportminingfamiliesandmuchofthe paycheckgetsspentindistanttradecenters. Aretechnologicaladvancesdecreasingthenumberofminersneededtominethesame amountofcopperorothermetals? Yes.Technologicaladvancesusuallyarefocusedonreducingtheamountoflaborthatis neededtooperatethemine.Mineproductionthatoncerequiredthousandsofworkers, nowrequireshundredsorevendozens. Isthereanegativeaspecttohighpayingminingjobs?Doesthatincreasethelikelihood thathighlyqualifiedindividualscanaffordtocommuteaconsiderabledistancetoamine, therebydecreasingthelikelyneedforemployinglocalworkers? Theveryhighpaythatminersreceiveispartiallytiedtothecomplexequipmentand processestheyhavetooperate.Localworkersmayormaynothavethoseskills.Evenif
85

Q. A.

Q. A.

Q. A.

Q.

A.

theydo,theywillfacecompetitionfromworkersdrawnbythehighwages,workerswho maybemoreskilledandhavemoreminingexperience.Asaresult,especiallyinrural areas,theminingjobsoftengotoincommutingorinmigratingworkers. Q. Somedegreeofeconomicstabilitywasachievedincopperandironminingareasofthe WesternUPinthepastbecauseofthelongdurationofcontinuousminingactivity.Are futuremineslikelytohavethesamelongevity?Withoutthatlongevitywilleconomic stabilitybelesslikelywithfutureminingthanwithpastmining? Themuchlongerlifeofpastminedidnoteliminatetheflickerorboomsandbusts duringthelifeofthemine,butthatlongerlifedidincreasethelikelihoodthatifminers couldhangon,manyofthemwouldbereemployedwhengoodtimesreturned.That ledtomoresocialstability(despitethefinancialsuffering).Contemporarymineslastonly adecadeorso.Asaresult,theemploymenttheyprovideismorelikeatemporarypulse ofjobsthatcomesandgoes. Miningalwaysleadstolanddisturbanceandnegativeenvironmentalimpacts.Are individualslesslikelytowanttoliveandworkinareaswithhighlydisturbednatural landscapesandinareasofenvironmentalcontamination,oroftheriskofsuch contamination?Whatquantitativeevidencesupportsthisassertion? ForahalfcenturyeconomistshavebeenstudyingthemovementofAmericansfromone locationtoanothertounderstandwhatisdrivingthatresidentialmigration.Thosestudies havesystematicallydocumentedthepositiverolethatattractivelocalcharacteristicsor amenitieshaveplayedinholdingexistingresidentsanddrawingnewresidentsandthe rolethatnoxiouscharacteristicsplayinpushingpeopleoutoforawayfromotherareas. Mostlocaleconomicdevelopmentorganizationsnowrecognizethisandseekto emphasizepositivefeaturesandminimizenegativefeatures.Botheconomistsandreal estateprofessionalshavequantifiedthepositiveattractionoflocalamenitiesandthe negativeimpactofnoxiouslocalcharacteristics. Forwhatreasonsmightacommunitynotwanttobecomeeconomicallydependentona mine? Giventheincreasingimportanceoflocallandscapeamenitiesissupportingnon metropolitaneconomicvitality,thepotentiallongtermenvironmentaldamageassociated withmetalmininghastobeverycarefullyconsidered.Alsogiventhemuchlowerlocal economicpayoffassociatedwithmetalminingbecauseofthedeploymentoflabor displacingtechnologythathasdramaticallyreducedthenumberofjobscreatedandthe muchshorterlivesofcontemporarymetalmines,thepublicbenefitcostratiohas declinedsignificantly.WhentheactualhistoricalexperienceinWesternUPandacross Americasminingdistrictswithridingtheminingrollercoasterthroughtheboomsand bustsisalsoconsidered,theriskofeconomicandsocialdisruptionhastobeincludedin thepubliceconomicevaluationtoo.
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A.

Q.

A.

Q. A.

 Q. A.

Whatistheeconomicdownsideofacommunitydependingonan"exporteconomy" (shippingitsresourcesoutofthearea)? Exportorientedfirmsaretheconduitthroughwhichfluctuationsininternationaland nationalbusinesscyclesarefunneledintothelocaleconomies.Asaresultaheavy emphasisonexports,especiallyexportsinoneindustry,candestabilizethelocal economy.Inaddition,iftheemphasisisprimarilyonexports,thelocaleconomymay becomeunderdevelopedandresidentsandbusinesseswillhavetogooutsidethe communitytoimportmostofwhattheywant.Thatleakagedrainsincomeoutofthe communitybeforeitcancirculateinthelocaleconomyandstimulatemoreeconomic activity. Doesitmakeeconomicsenseforacommunitytotrytoprovideeconomicstability throughadiversityofeconomicopportunitieswhileallowingfor,butnotdependingupon, largecorporateemployerssuchasminesandmajorfactories? Diversityintherangeofeconomicactivitiesthattakeplacewithinthecommunityboth increasesthestabilityoftheoveralleconomyandbooststhemultiplierimpactsofnew dollarsdrawnintothelocaleconomybycapturingandrecirculatingthem.Growingthe webofcommercialrelationshipswithinthecommunityarecrucialtobotheconomic developmentandstability. Howcanafocusonproducingforlocalconsumptionanduseasopposedtoexporting productsimprovetheeconomichealthofacommunity? Localeconomicdevelopmentrequiresthedevelopmentoflocalinterdependencyamong residentsandbusinesses.Ifataparticularplacelargequantitiesofvaluablecommodities areexportedandtheincomeflowingbackfromthoseexportsisusedexclusivelyto importthingsthatlocalbusinessesandhouseholdsneedandwant,almostnoeconomic developmentwilltakeplace.ItwillbeliketheNorthSlopeofAlaskawherebillionsof dollarsworthofoilhavebeenexportedbutthereisalmostnolocaleconomypresent. Whatisa"secondpaycheck,"andwhyisthatimportanttoacommunity'seconomy? Becausepeoplecarewheretheylive,theyarewillingtosacrificeacertainamountof incomeinthepursuitofwhattheyperceivetobehigherqualitylivingsituations.Thatis whatleadspeopletobewillingtopaymoreforresidentialpropertyinattractivelocations (lesscrime,congestion,pollution,etc.andbetterschools,parks,culturalopportunities, etc.).Insomelocations,whereresidentialpropertyisnotinshortsupply,theentryfee tomoreattractivelocationsmaybelowerpayandmorelimitedeconomicopportunities. Justasthequalitiesofamoreattractiveneighborhoodjustifythesacrificeofpayingmore forhousing,thelowerpayinotherlocationsmaybejustifiedbytheattractivequalities.In thesesetting,peopleseconomicwellbeingisdeterminednotonlybytheirmonetary
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Q.

A.

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paychecksbutalsobyasecondpaycheckintheformofthevalueofthepositive qualitiesoflifeassociatedwiththoseareas. Q. A. Docultural,recreational,andeducationalopportunitiesoftenattractqualityworkersto anareaandkeepthemthere?Canthisbequantified? Yes.Becausepeoplecarewheretheyliveandactonthosepreferences,wecanstudy peopleslocationdecisionstodeterminehowmuchtheyvaluecertainlocal characteristics.Realestateprofessionalshavebeendoingthisforaslongastheyhave existed.Theyhavenodifficultyfiguringouthowlowercrime,betterschools,more pleasinglandscapesandviews,lessnoise,pollution,andcongestion,etc.affectswhat peoplearewillingtopayforproperty.Economistshavebeenusingthesametoolsto understandwhatitisthatleadstoinmigrationtocertainareasandwhatitisthosein migrantseffectivelypayforthelocallyspecificamenities. ThenumberofjobsintheWesternUPhasnearlydoubledinthelast40years,inspiteof theclosureoftheWhitePineMine.Whyisthis? Therearetwoprimarysetsofreasons: i. Moreandmoreofhouseholdincomehasbeencomingfromsourcesotherthan paychecks.Insteaditcomesfrominvestmentincome,retirementincome,and othernoncommercialtransfersofincometoindividualsandhouseholds.Inthe WesternUP,thesesourcesofnonemploymentincomearealmostaslargeas peopleswagesandsalaries.Thistypeofincomehasbeenstimulatingjobcreation. ii. Moreandmorefamilymembershavesoughttoworkatleastpartofthetime outsideofthehome.Thisallowsthemtocombineobligationswithinthehome withhigherhouseholdincomeandthesocialsatisfactionassociatedwithsuch work.Thisworkoutsideofthehomehasalsoincreasedthedemandforproducts producedbylocalbusinessesandthearrayofcommercialbusinessesthatare viable:Daycareforchildren,eatingoutsidethehome,hiringnonfamilymembers todopartofthemaintenanceofthehome,etc.Wehavebeenincreasinglytaking ineachotherswashwhichproducesalargermorediverseeconomyand developingeconomy. TherealIncomeofOntonagonCountyresidentshasremainedfairlyconstantoverthe past40years,inspiteoftheclosureoftheWhitePineMine.Whyisthis? Thereareseveralreasons: i. LessthanhalfoftheemployeesattheWhitePineMinelivedinOntonagon County.SoitwasnotonlyOntonagonthatcarriedtheburdenofthemine shutdown. ii. Thelevelofemploymentoutsideofminingandotherlandbasedeconomic activitiesincreased,especiallythoseinlocallyorientedeconomicactivities.
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iii. ResidentsofOntonagonCountycommutedouttoworkjustasmanyworkershad commutedintoworkatWhitePineMinewhenitwasoperating. iv. Nonemploymentincome(investmentincome,retirementincome,andincome supportprogramssuchasworkersunemploymentcompensation)increasedand wasspentinthecommunity. WhatfractionoftotalemploymentintheWesternUPisassociatedwithextractive industriessuchasminingandlogging?WasthisfractionmuchhigherwhentheWhite PineMinewasoperating? Between1969and1977,whentheWhitePineMinewasoperating,abouttwothirdsof thejobsinOntonagonCountywereinthetraditionalexportsectors.Intheperiod2001to 2010onlyonefifthofjobswereinthosesectors. ThepercentageoftotalincomeintheWesternUPthatisgeneratedbylaborisdecreasing withtime.Why,andisthissignificantasfarastheneedforlargeemployerssuchas minesandlargefactories? Intheearly1970aboutaquarteroftheincomereceivedbyresidentsoftheWesternUP camefromsourcesotherthanpayforwork.Bythe20012010periodthecontribution fromthesenonemploymentsourcesofincomehadrisento40percentormore.Clearly thisreducedtherelativeimportanceofwagesandsalariesintheoveralllocaleconomy. Currently,approximatelywhatpercentageofincomeintheWesternUPisassociatedwith wagesandsalariesandothercompensationforwork? Inthe20012010periodemploymentearningsrepresentedabout60percentofincome receivedbyresidentsoftheWesternUP.DuringtheGreatRecessionthisdeclinedto about55percentbecauseoftheimportanceofincomesupportpaymentssuchas UnemploymentCompensation,Medicaid,andFoodStamps.

A.

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Q. WilltheWesternUP'slargeretirementpopulationlikelybeanincreasinglyimportant sourceofincomeandspending? A. Yes,iftheWesternUPcanretainitscurrentretireesandattractothers.Abouthalfofthe nonemploymentincomeflowingintotheWesternUPisretirementrelated.That representsabout20percentoftotalincome.Asmoreandmoreboomersretire,this couldbeagrowingsourceofincomeflowingintotheregion. Q. AreminesnecessarytoprovideanincreaseinpercapitaincomeintheWesternUP? A. No.Percapitaincomeisdeterminedbyavarietyoffactorsotherthanwhatthepaylevel inaparticulartypeofjobhappenstobe.Incomeflowstoresidentsofacountycancome fromawidevarietyofdifferentsourcesinadditiontothepayrollofaparticularindustry,
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e.g.jobsfromadiversesetofeconomicactivities,investmentandretirementincome, incomefromcommutingtojobsoutsideyourcommunityofresidence,etc. Q. HowmanyworkerswillbeemployedattheproposedCopperwoodMine,averagedover 13yearlifeofthemine?Bywhatpercentageisthatlikelytoincreasetotalemployment intheWesternUP? TheCopperwoodMineprojectsthat273workerswillbedirectlyemployedeachyearover thelifeofthemine.Thatwouldrepresentlessthanonepercentofthetotaljobsinthe WesternUPstudyareain2010. WhatisthetotalamountofincomereceivedbyemployeesattheproposedCopperwood Minelikelytobeovertheexpected13yearlifeofthemine? Theannualpayrollfortheseworkerswouldbeabout$24million.Thiswouldaddabout2 percenttototallaborearningsintheWesternUPstudyareain2010. Whatpercentageofthevalueofmetalsremovedfromtheminewillnotgotoward employeeincome? Onlyabout14percentoroneseventhofthevalueofthemineralsproducedwouldgoto paytheworkersattheproposedCopperwoodMine.Theother86percentofthevalueof themetaloreswillgotoowners,investors,equipmentandinputsupplyingfirms,and governments. Willmoneygeneratedbythemineflowtothelocalareainwaysotherthanbyemployee spending? Mineemployeespendingisthemostlikelysourceofeconomicimpactsoftheproposed mine.TotheextentthattradecenterslikeHoughtonandIronwoodcanprovidesomeof theequipmentandsuppliesneededbythemine,thatminespendingcouldalsohavean impact.Thisimpactislikelytobelimitedbecauseoftherelativelysmallsizeofthesetrade centers. Wherewillmostofthemoneygeneratedbytheminego? Abouthalfofthevalueofthemineralsproducedbytheminewillgotomineandmineral ownersintheformofroyalties,rents,interest,profits,etc.Aboutaquarterwillgoto thosewhosellequipmentandsuppliestothemine.Aboutaseventhwillgotoworkersat themine.Theremainingtenpercentwillgofortaxesandpaymentstoselfemployed professionals. AmineliketheCopperwoodMinewouldprovideeconomicbenefittothelocalarea throughemployeespendingandbusinesstaxes.Isthereaneconomiccosttothelocal
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A.

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areaaswell?Whatfactorscontributetothiscost?Canthesecostsbequantified,orat leastestimated? A. Alleconomicactivitieshavecostsassociatedwiththem.Thereisnosuchthingasafree lunch.Mining,becauseitislandscapeintensiveandinvolvesindustrializingrural landscapes,tendstodisplaceothertypesofeconomicactivities.Inparticular,ittendsto displaceeconomicactivitiesthatrelyonhighqualitylandscapesaswellasnaturaland socialenvironments.Holdingandattractingnewresidentsandbusinessesandthevisitor economyaretwosourcesofeconomicvitalitymostlikelytobeaffected.Businesstaxes arepaymentsforashareofthepublicservicesthatneedtobeprovidedtothebusiness anditsemployeesandsuppliers.Theyhelpcoverthecostsofmaintainingroads,providing lawenforcement,fundingschoolsforworkerschildren,etc.Therealsomaybelongrun cleanupandmonitoringcoststhatthepublicmayhavetopayifthebondsrequiredofthe miningcompaniesarenotsufficienttocoverthosecosts.Acareful,detailed,and independentanalysisofthesecostscanprovideestimatesofthosecosts. Howcanitbebeneficialtoacommunitytoworktocreatejobswithintheexisting communitystructureratherthanhopingthatsomeentitywillcomeinand"givethem jobs"?Inotherwords,whyisitgoodforacommunitytoactivelytrytocreatejobswithin thatcommunityratherthanpassivelyhopingforanoutsidesaviortobringjobstothe community? Communityeconomicdevelopmentultimatelyreliesontheentrepreneurialenergyofthe residentswhoseeopportunities,bothcommercialandpublic,tocreatenewvalueinthe community.Entrepreneurialistheoppositeofpassiveordependent.Thelatterleadsto companytownsinwhichthereislittlehomegrowninnovationandthequalityofthe communityscommercialandpublicinfrastructuresystematicallydeterioratesdespitethe payrollprovidedbythedominantoutsidefirms. Areentrepreneurialbusinessesmorelikelytomovetocommunitieswithsignificant cultural,recreational,andeducationalamenitiesthantocommunitiesthataremining dependent?Istherequantitativeevidenceforthis?Whywouldsuchbusinessesshy awayfrommineandmilltowns? Skilledandinnovativeentrepreneursfaceabroadrangeofpossiblelocationsinwhichto locateandstartbusinesses.Theycanaffordtomakechoicesbasedonboththeirpersonal preferencesandthelikelihoodthatacommunitywillprovideasupportiveenvironmentin whichtheycaninteractwithotherinnovators.Empiricalevidenceclearlyshowsthatthey aredrawntocommunitieswithhighqualitynaturalenvironmentsandoutdoor recreationalopportunities.Theyarealsodrawntocommunitieswithacriticalmassof otherentrepreneursandotherskilledknowledgeworkers.Mining,becauseofthedamage itdoestotheenvironment,itstendencytoindustrializeruralareas,anditspastpatternof encouragingacompanytownsyndromemaywellmakearegionunattractivetosuch entrepreneurialinnovators.
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Miningcompaniesareoftenquicktotouttheirminesas"stateoftheart,"toclaimthat newminingdoesnotcomewiththenegativeenvironmentalimpactsofoldmining,and thatexistingregulationsareadequatetopreventsignificantenvironmentaldamage.In general,aretheirclaimsjustified? Miningcompanieshaveadirectfinancialinterestinconvincingresidentsandpublic officialsthatthistimewillbedifferent.Ifthepastenvironmentalandeconomicdamage associatedwithminingcanbeignoredasirrelevant,miningcompaniescanseeklower levelsofregulationandhigherlevelsofallowedemissions.Thatlowerstheircostsand booststheirprofits.Asystematicreviewoftheenvironmentalimpactstatements associatedwithnewmetalminesoverthelastseveraldecadesindicatesthatwater pollutionassociatedwiththosemineshasbeenregularlyunderestimatedbecausethe effectivenessofthepollutioncontrolswasoverestimated,thehydrologyofthemines mischaracterized,andthechemistryofthemetaloreswasincorrectlydescribed.
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AppendixB:StudyApproach

1.DescriptionoftheWesternUpperPeninsulaEconomyandAnalysisofTrends
TheU.S.BureauofEconomicAnalysiswithintheU.S.DepartmentofCommercemaintainsthe RegionalEconomicInformationSystemthatprovidesdetailedeconomicinformationforevery countyintheUnitedStates.Thatdataseriesbeginsin1969and,atthetimethisstudywas undertaken,thelatestdatawasfor2010. Theeconomicinformationobtainedforeachcountyincluded: i. Componentsofpersonalincomebycountyofresidenceincludinginvestmentincome (dividends,interest,andrent),transferpaymentsunrelatedtocurrentemployment largerfromgovernmentagencies,andincomefromoutcommutingtoanothercounty towork. ii. Employment(jobs)bycountyofworkandindustry.Between1969and2000 employmentwasreportedfor14differentindustrialcategories.Between2001and 2010employmentdatawasavailableby24differentindustrialcategories. iii. Laborearnings(wagesandsalariesandnetincomeoftheselfemployed)byplaceof workwereavailableforabout80industrialcategoriesbetween1969and2000andfor about90industrialcategoriesafter2001. iv. ItisimportanttonotethatinruralcountiessuchasintheWesternUP,thereareoften sofewbusinessesinthesedetailedindustriesthattheeconomicinformationcannotbe releasedbecauseofprivacyconcernsforindividualbusinesses.Thatmeansthatthe actualdetailinthedataavailableforruralcountiesismuchlessthanthenumberof industrialcategoriesmentionedabovesuggests. v. Transferpaymentsthatarenotrelatedtocurrentworkareavailablebrokenintoabout 25differentcategoriesincludingSocialSecurity,Medicare,Medicaid,Unemployment Compensation,FamilyAssistance,FoodStamps,andVeteransBenefits. vi. Allincomedatawasconvertedtodollarsof2010purchasingpower(inflationremoved) usingtheConsumerPriceIndex. vii. FromU.S.BureauoftheCensusweobtaindataonthecommutingtoworkpatterns amongtheWesternUpperPeninsulacounties. Thissetofeconomicdataonemploymentandincomeoverafortyyearperiodwasusedto determinethesourcesofincreasesanddecreasesinemploymentandincome,i.e.thesources oflocaleconomicvitalityordecline.Italsoallowedustostudychangesinthestructureofthe localeconomyovertime.

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2.AnalysisoftheLocalEconomicImpactsofMining
Inordertostudytheimpactofminingonlocaleconomicvitalityoveramultidecadeperiod,we identifiedapproximately100U.S.counties,includingMarquetteCountyintheUpperPeninsula, inwhichtherewassubstantialminingactivityinthe1980to1990periodandthenstudied differentmeasuresoflocaleconomicvitalityinthosecountiesbetween19801990,19902000, and20002008.Weusedgrowthinemployment,realincome,population,andpercapita incometomeasurelocaleconomicvitality.Wealsostudiedthelevelofpercapitaincomein miningcountiesasopposedtononminingcounties.Inadditionwestudiedunemployment ratesinover100countiesthathadsignificantcoalminingemploymentandcomparedthat unemploymenttothatofnoncoalminingcountiesinthesamestate.Wealsodrewonan establishedeconomicsliteraturedealingwiththerelationshipbetweenrelianceonnatural resourceindustriesandlongtermeconomicdevelopment. WealsolookedcloselyattheUpperPeninsulaslastexperiencewithcoppermining,theWhite PineMineinOntonagonCountyandhistoricalinformationfromtheU.S.GeologicalSurveyon fluctuationsincopperpricesandcopperproductioninU.S.mines.Inaddition,wedrewona Ph.D.dissertationfromtheUniversityofWisconsinMadisonthatanalyzedthelocalimpactsof theWhitePineMineinOntonagonCountyasacasestudy. Back to table of contents

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AppendixC:MineDependentCounties:19801990

Walker,AL Gila,AZ Greenlee,AZ Pinal,AZ Gunnison,CO Lake,CO LasAnimas,CO Moffat,CO Ouray,CO Routt,CO SanJuan,CO Washington,GA Caribou,ID Owyhee,ID Shoshone,ID Franklin,IL Gallatin,IL Macoupin,IL Perry,IL Saline,IL Sullivan,IN Wabash,IL Bell,KY Clay,KY Elliott,KY Harlan,KY Hopkins,KY Johnson,KY Knott,KY Leslie,KY Letcher,KY Magoffin,KY Martin,KY McCreary,KY Muhlenberg,KY Ohio,KY Perry,KY Pike,KY Union,KY Webster,KY Garrett,MD Marquette,MI PresqueIsle,MI Itasca,MN St.Louis,MN Iron,MO Washington,MO Phillips,MT Cibola,NM Eddy,NM Grant,NM McKinley,NM Esmeralda,NV Eureka,NV Lincoln,NV Pershing,NV Storey,NV WhitePine,NV Belmont,OH Harrison,OH Meigs,OH Monroe,OH Vinton,OH Craig,OK Clarion,PA Greene,PA Indiana,PA Lawrence,SD
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Campbell,TN Claiborne,TN Marion,TN Scott,TN Carbon,UT Emery,UT Grand,UT SanJuan,UT Buchanan,VA Dickenson,VA Russell,VA Tazewell,VA WiseNorton,VA Barbour,WV Boone,WV Fayette,WV Grant,WV Logan,WV Marion,WV McDowell,WV Mingo,WV Monongalia,WV Nicholas,WV Preston,WV Raleigh,WV Upshur,WV Webster,WV BigHorn,WY Campbell,WY Carbon,WY Converse,WY Fremont,WY Lincoln,WY Sheridan,WY Sweetwater,WY

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AppendixD:CoalMiningDependentCounties:1998

ALABAMA FAYETTECOUNTY JEFFERSONCOUNTY TUSCALOOSACOUNTY WALKERCOUNTY ARIZONA NAVAJOCOUNTY COLORADO GUNNISONCOUNTY MOFFATCOUNTY ROUTTCOUNTY ILLINOIS GALLATINCOUNTY JEFFERSONCOUNTY LOGANCOUNTY MACOUPINCOUNTY PERRYCOUNTY RANDOLPHCOUNTY SALINECOUNTY WASHINGTONCOUNTY WHITECOUNTY INDIANA CLAYCOUNTY DELAWARECOUNTY GIBSONCOUNTY GREENECOUNTY KNOXCOUNTY PIKECOUNTY SULLIVANCOUNTY VIGOCOUNTY WARRICKCOUNTY KENTUCKY BELLCOUNTY BREATHITTCOUNTY FLOYDCOUNTY HARLANCOUNTY HENDERSONCOUNTY HOPKINSCOUNTY AL AL AL AL AZ CO CO CO IL IL IL IL IL IL IL IL IL IN IN IN IN IN IN IN IN IN KY KY KY KY KY KY KNOTTCOUNTY LESLIECOUNTY LETCHERCOUNTY MARTINCOUNTY MCLEANCOUNTY MUHLENBERGCOUNTY PERRYCOUNTY PIKECOUNTY UNIONCOUNTY WEBSTERCOUNTY MONTANA BIGHORNCOUNTY ROSEBUDCOUNTY NEWMEXICO MCKINLEYCOUNTY SANJUANCOUNTY NORTHDAKOTA MCLEANCOUNTY MERCERCOUNTY OHIO BELMONTCOUNTY HARRISONCOUNTY JACKSONCOUNTY JEFFERSONCOUNTY MEIGSCOUNTY MONROECOUNTY MORGANCOUNTY PENNSYLVANIA ARMSTRONGCOUNTY CAMBRIACOUNTY CLEARFIELDCOUNTY GREENECOUNTY INDIANACOUNTY JEFFERSONCOUNTY SCHUYLKILLCOUNTY SOMERSETCOUNTY WASHINGTONCOUNTY KY KY KY KY KY KY KY KY KY KY MT MT NM NM ND ND OH OH OH OH OH OH OH PA PA PA PA PA PA PA PA PA TEXAS FREESTONECOUNTY HARRISONCOUNTY LEONCOUNTY MILAMCOUNTY PANOLACOUNTY RUSKCOUNTY TITUSCOUNTY UTAH CARBONCOUNTY EMERYCOUNTY SEVIERCOUNTY VIRGINIA BUCHANANCOUNTY DICKENSONCOUNTY LEECOUNTY RUSSELLCOUNTY TAZEWELLCOUNTY WISECOUNTY WESTVIRGINIA BOONECOUNTY BROOKECOUNTY CLAYCOUNTY FAYETTECOUNTY HARRISONCOUNTY KANAWHACOUNTY LOGANCOUNTY MARIONCOUNTY MARSHALLCOUNTY MCDOWELLCOUNTY MINGOCOUNTY MONONGALIACOUNTY NICHOLASCOUNTY UPSHURCOUNTY WAYNECOUNTY WEBSTERCOUNTY WYOMINGCOUNTY WYOMING CAMPBELLCOUNTY CONVERSECOUNTY TX TX TX TX TX TX TX UT UT UT VA VA VA VA VA VA WV WV WV WV WV WV WV WV WV WV WV WV WV WV WV WV WV WY WY

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