The output figures used in our computations are presented in appendix 3A. Labor costs, as
----------
8/ Due to the unavailability of information from this source
Tor 1976, a 15 percent price increase was assumed.
9/ It is known that natural gas constituted only 6.8 percent
of Japanese energy supply in 1973 as contrasted to 30.6 percent in the United States (10, p. 12).
-107-
mentioned above, were normalized by the BLS, using physical
output quantities with so"ie adjustlTlent for product mix.
,- -~
Resul ts
Introduction. In discussing the results the following
terminology will be employed.
Price of input:
as defined in the
the da ta used.
the pr ice of the input
section above descr ibing
Unit purchases of the input: .~the purchased
quantity of the input (as decr ibed above
in the discussion of the data) per metric
ton of steel proouct output.
Unit cost for the input: the price of the
input times the unit purchases of the
input. In other words, the average cost of
the input to the country's steel industry
per metr ic ton of steel product output.
Figures 3.1, 3.2, and 3.3 show, for each of the past
21 years, the U.S. unit costs, unit purchases, and prices of
the inputs studied relative to Japan's costs, purchases, and
prices. Tables 3.1, 3.2, and 3.3 provide supporting numerical
data. Figure 3.4 shows, for the U.S. and Japan, cumulative
unit costs for all the inputs studied.
Labor. The primary difference between U.S. and Japanese
un i t steelmak ing costs is the unit cost for labor. The d i fference in un i t labor cost, in turn, is due pr imar ily to the labor
wage rate differential.
Between 1956 and 1961, the unit cost for labor in the U.S.
generally increased relative to that in Japan.
Unit labor costs
I
in the U.S. increased ~s the price of labor increased and unit purchases failed to decrease correspondingly. In Japan,
the pr ice of labor was increasing somewhat more rapidly than in
the U.S. but labor productivity was increasing at roughly the
same rate, allowing the Japanese fairly constant unit costs.
From 1961 to 1966, unit labor cost in the U.S. declined
somewhat, but there was no clear trend in the relationship
between the U.S. and Japan. Decreasing unit purchases of labor
continued to keep Japan's unit cost for IGbo~ roughly constant
or declining slightly in the face of a labor price which
continued to rise faster than the pr ice in the U. S.
From 1966 to 1970, the U.S. unit cost for labor again
rose relative to Japan's as the U.S. price rose and unit
purchases of labor stayed fairly constant.
From 1970 to 1974, the U.S. relative cost for labor
declined to near the 1958 level. This reversal of trend
occurred because the Japanese labor price continued to
increase faster than the U.S. price, as it had since 1959; but
the yearly reduction in Japan's unit labor purchases, which
had been quite large prior to 1970, became smaller as Japanese
labor productivity approached that of the U.S.
In 1975, the U.S. relative labor cost increased as U.S.
unit purchases rose above the 1973 level and Japan's price of
labor failed to rise appreciably faster than that of the U.S.
There was a further increase in the U.S. relative unit cost in
1976 as the Japanese showed a remarkably small increase in the
price of labor.
-119-
The upturn in 1975 may not have signaled the end of U.S.
improvement relative to Japan. It is possible that the upturn
was, to some extent, a cyclical phenomenon. The decline in
steel demand from 1974 to 1975 resulted in a nearly 21 percent
decrease in U.S. steel production. In 1976, production was
still less than 83 percent of the 1974 level. Although labor
is classified as a variable cost, major changes in plant work
forces are not made easily and unit labo~ 'cOst tends to rise
as production is cut back. Japan also suffered a downturn in
production from 1974 to 1975; but it was somewhat milder--
less
than 15 percent. In 1976, the Japanese produced over 91 percent of the 1974 level. In the future, if the Japanese are
unable to increase their labor productivity much beyond that
of the U.S., ana if Japanese labor wage rates resume their
earlier tendency to increase more rapidly than those in the
U.S., improvements in relative unit labor costs could significantly improve the U.S. competitive position.
Iron Ore. The U.S. steel industry's unit cost for iron
ore generally increased relative to Japan's over the entire
20-year period examined. This occurred despite increases in
Japan's unit purchases relative to those of the U.S. because
of overr iding decreases in the relative pr ice of iron ore to
Japan. Japan had a generally decreasing pr ice from 1956
through 1970; and even dur ing the past few years when Japan's
pr ice increased sharply, it generally increased less sharply
than for the U.S. The U.S. price of iron ore rose through most
-120-
of the period. Japan's unit purchases of iron ore increased
relative to those of the U.S. due to generally decreasing unit
purchases in the U.S. and generally increasing unit purchases
in Japan. Japan's increase has probably been due to both a
substitution toward iron ore from scrap and a shift toward
lower quality ore. It should be noted that U.S. iron ore
receives considerable upgrading at the mine site which is
included in the price of the
