the industry has recently moved into a position of quasi-permanent


On the united States side, the industry has recently moved
into a position of quasi-permanent employment for approximately
for ty percent of its employees. These forty percent (generally
those with the most senior ity) are effectively protected against
layoffs until the age of 62. The steelworkers' union promises
to increase coverage in future negotiations until all workers
are similarly protected. Specifically, the contract provides
Effective January 1, 1978, an employee
with 20 or more years of service as of his
last day worked becomes eligible for a Rule
of 65 pension if (1) he is off work because
of a shutdown, extended layoff or disability,
(2) his age plus service equals 6~ or more,
and (3) his company fails to provide him with
suitable long term employment. Because he
accrues age and service dur ing layoff or sickness (commonly called wcreepingW), a twentyyear employee who meets all of the require- mentsneed be only 41 years old when first
laid off,

 or when his Sickness and Accident
Benefits begin, to become eligible for a
Rule of 65 pension.
The amount of pension is calculated as it
is for other pensions. Bowever, in addition
to the pension amount, a Rule of 65 pensioner
also draws the pension supplement which has
been raised by the 1977 Settlement to $300
per month. This supplement is suspended
should the retiree obtain sui table' ~órig
term employment, but it is resumed if
employment ends. Otherwise, the supplement continues until age 62 or such earlier
time as the retiree becomes eligible for
Social Secur ity. 81/
Thus, United States' steel labor costs cannot be viewed as
completely var iable.
It appears that, when one compares the Japanese contract
labor and Japan's recession type unemployment compensation
with the new permanent employment contract of the United
States' steel industry, the labor costs for the Japanese
81/ Quoted from Steel Labor:
Wõrkers of America, May, 1977, page 14 that:
The Voice of the United Steelp. 15. It is stated there on
Similarly, we have laid the foundation in this
1977 contract on which to build a lifetime security
program for all steelworkers. This foundation
consists of a series of greatly expanded benefits
for 40 percent of the employees of the ten major
steel companies--those with 20 or more years of
service. In future negotiations we must increase
the group of employees covered by the plan until
all are protected. At the same time, we must work
to increase the b~nefits provided by the plan until
it fully meets the goal of lifetime job security.
are as variable as those in the United States. Moreover, the
trend is for greater labor cost variability in Japan: usage
of contract labor has been increasing dur ing the pastdecade~
especially in the modern plants which export to the U. S. and
the newly ava i 1 able recess ion unemployment compensa t ion lower s
the portion of fixed costs cyclically. Meanwhile, American
steelworkers are moving in the direction of permanent employment. 82/
The major U.S. producers tend to be integrated backward
.~ .
into coal and iron ore ni~ning. Thus, when demand falls,
producers in the United States cannot reduce raw materials
costs proportionately due to the fixed costs of operating
iron ore and coal mines.
Generally, Japanese steel producers are not as integrated
backwards into coal or iron ore production as the U.S. producers.
In fact, Japan relies on raw material supplies which are
heavily under foreign control. 83/ Japanese steel producers
82/ It should also be noted that labor costs amount to less
tnan 15 percent of Japanese revenues, compared with over
35 percent for the United States. See Kawahito (13, p. 169)
for estimates for the 1960' s. Kawahito's source was
Tekko Shinbun Sha, Tekko Nenkan, 1968. According to the
Japan Iron and Steel Federation in 1973, wages as a percentage of total sales were as follows:
TOp five Japanese steel firms
Four top steel firms in West Germany
Eight top U.S. steel firms
12.3 percent
21.7 percent
36.6 percent.
83/ For detailed dat~ on comparative self sufficiency in iron
ore see (11, p. 52), and chapter 2 for coal self-sufficiency.
purchase about 80 percent of their iron ore and coal through
Japanese trading companies. The trading companies purchase
their raw materials primarily through long-term_contra~ts,
although short-term contracts and spot purchases are utilized
as well (27, p. 2). Trading companies purchase iron ore on
12 to 15 year contracts. Yearly shipments can vary plus or
minus 10 percent provided that a total quantity is taken over
the life of a contract (27, p. 1, 2). 

Thus,' recession deliveries
can be 20 percent less than boom deliveries under the contract.
These contracts are staggered such that a rough ly proport ionate
number expire each year. The expiring contracts represent
costs which can be varied. Moreover, the raw materials costs
of the steel producers are somewhat more variable than for the
trading companies since steel producers do not necessarily
purchase stocks of raw materials owned by trading companies. 84/
The Japanese steel producers, who are less integrated back to
raw material~, may adjust their raw materials costs at least
as read i ly as the U. S. producers. ~/
84/ However, the greater variability obtained through
utilizing trading companies should not be overemphasized.
Long-term relationships between steel companies and trading
companies imply that, one way or another, steel companies
will have to pay for storage costs of raw materials. These
costs represent a deterrent to having the trading company
hold the raw materials.
85/ Raw materials costs amount to approximately two-thirds
and four-tenths of total revenues for Japan and the United
States, respectively; see (13, p. 169).
It is true that most major foreign producers are financed
by a grea ter percentage of debt, for wh ich interes t obI iga t ions
are fixed. 86/ However, even Japan, wh i ch has the highest
debt-equity ratio, has interest payments accounting for less
than six percent of its revenues. Moreover there is a quasifixed element to dividend payments as U.S. companies are loathe
to suspend dividends. Thus, the difference in the share of
fixed costs resulting from the financial'~tructure seems to
be negligible and insufficient to be the driving force behind

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