Blog: Four Years is just the start if Tiwai Point closes

By Craig Renney, CTU economist

Reports prepared for Invercargill City Council don’t usually make the news. But when they attempt to understand the possible impact of the closure of Tiwai Point, heightened media interest[1] is understandable. The report[2] highlights the outsized importance of the site to the local economy and community. More than 2,000 people rely on the plant for direct employment or as part of its supply chain.

The good news according to the report is that should the plant close in 2024, it would not have the catastrophic economic impact that many might worry about. The report itself says that the jobs losses could be ‘absorbed’ within just four years. The authors in their evidence to the council reportedly suggested that it could be even quicker than that “based on the way things are at the moment it might be one to two years because things are running that hot”.

If it were that straightforward it would be a great outcome. But sadly, the closure of Tiwai Point would likely create an impact that would be felt for more than one generation. The optimistic analysis above is based on the loss of 2,264 jobs being replaced by the 620 jobs currently being created in manufacturing and construction a year in Southland. The loss of Tiwai would almost certainly reduce the number of jobs being created in the region – meaning those replacement jobs just wouldn’t be there.

The report also shows that around 97% of the jobs at Tiwai would be lost in Invercargill. Southland is a big place – so do we really think that jobs being created in Te Anau are replacements for jobs lost in Invercargill 155km away? It’s much more likely that the jobs being lost would have a devastating local effect on Invercargill, while employment created in Gore would make little if any real impact.

The report also misses one of the biggest impacts that major job loss has on local areas – which is on wages. When workers lose their jobs, the next job they get is often paid less as it is not a great match for their skills, or comparable wages aren’t available. In the economics trade, we call this ‘wage scarring’. Wages at Tiwai are high – and often much higher than that available outside. The scale of that wage scarring when 2,264 people are suddenly chasing every available job would be enormous.

Two other assumptions that drive the four-year replacement forecast are worth unpicking more. The report uses jobs being created in manufacturing and construction as substitutes for the jobs being lost at the Tiwai site. In reality, there are likely to be significant differences in the skills needed in these jobs – ‘manufacturing and construction’ is a really broad part of the economy. This means that the workers from Tiwai wouldn’t easily slot into these jobs. That is likely to slow the transition into employment for newly unemployed workers.

The second assumption inherent in that four-year projection is that the closure wouldn’t have any spillover effects on the local economy. Significant local job losses are often associated with the loss of jobs in sectors not directly associated with the industry being closed. The loss of a big factory harms local shops. On local restaurants. These second-round effects are particularly pronounced when the employment loss is geographically concentrated, which would be the case at Tiwai. It wouldn’t just be 2,264 local jobs being lost – it would be many many more.

This isn’t to criticise the authors of the report – it’s just that way too much weight is being put on analysis that isn’t designed for that purpose. What we shouldn’t do is relax. Whether Tiwai Point stays or goes, there is much work to be done to make sure that Invercargill and the Southland economy have a positive future.

We should use the time that Tiwai is still here to build the high-wage, high-skill economy needed outside of the smelter. The more high-quality jobs that are here, the lower the impact of closure would be. We should be getting alongside the workforce and unions at Tiwai, ensuring that workers have the skills that will be needed whenever the site closes. We should be ensuring that the site is cleaned for future use, using a local workforce. That would be truly delivering a ‘just transition’ for that community.    

Much of that work is going on right now. Everyone from the Southland Just Transitions Project, Murihiku Regeneration, to Ngāi Tahu is working together to tackle the issues of when Tiwai Point finally closes. But instead of thinking that this is a problem that can be solved between Rugby World Cups, we should instead be delivering a productive, sustainable, and inclusive economic plan for Tiwai for the next thirty years.