The procedure calls for the followiĂ±gaefinitions:

JB = Japanese relative export pr ices of bars in the year t

t

JB = the average of Japanese relative export bar prices of the

years in the sample, i.e.,

JB = 1

16

1976

~

t=196l

JB

t

*

and JB JB =

-B - J t t

*

JB =_(JB - yBi

t t

t £ B

t £ R

where B = the set of all years in the sample which are above

average years of steel aemand and R = the set of all years in

the sample which are below average years of steel demand.

The cyclical dual pricing hypothesis predicts that J is *B

t

positive in boom years and contraction years.

-229-

*

Assuine that (JB

1961

an underlying population

, . .

*

. , JB ) is a random sample

1976

from that is normally distributed

with unknown variance. The cyclical dual pricin\j iiypothesis

predicts that the mean of this population is greater than zero.

A 9cneralized likelihood ratio test for this hypothesis

was employed. This test may be reduced to a t- statistic. 77/

Nine separate tests were performed: one for each of the three

."'''. _.

carbon steel products for each of the three re9 ions.

The results are presented in taole 4.20. The numbers in

the table represent the estimated values of the t-statistic

appropriate for the particular test. A high and positive value

of the t-statistic tends to confirm the hypothesis that the

mean is positive; i.e., that there is cyclical dual pricing.

conversely, negative values tend to disconfirm the cyclical

dual pricing hypothesis.

At significance levels of .10 or lower the data call for

rejection of toe hypothesis of cyclical dual pricing--in all

nine cases. 78/ Significance levels higher than .10 are cons ide red poor tests because of an unacceptaoly hi9h probabil i ty

of accepting the al ternative hypothesis when the null hypothes is

is true. Nonetheless, at the significance level of .25, one

77/ For a more detailed discussion of the procedure see: Hogg

and Craig (8, ch. 10, section 11, and especially Mood, Graybill,

and Boes (18, pp. 428-4291.

78/ The significance level of this test is the probability of

ĂŁCcepting the hypothesis that there is cyclical dual pricing

if in fact there is n6ne.

-230-

would accept the cyclical dual pricing hypothesis for EC bars

and plate, and U.S. bars. This study concludes that the data

do not support the hypothesis that Japan, the European

Community, or the United States prices its steel products in

a cycl ical dual pr icing manner. 22/

Explanation of the Results. The hypothesis of greater

relative export price variability for the Japanese and

Europeans emanated from the assumption that they have a larger

share of fixed costs. This in turn assumed. their labor costs

were fixed and that the Japanese debt-equity ratios imposed

significant fixed costs on the Japanese.

TABLE 4.20

Result of Likelihood Ratio Tests

10r Cyclical Dual Pricing Hypothesis

Estimated values of the t-statistic

Product (carbon steel) Country

Japan E.C. u.s.

Bars -1.72 .742 1.206

Cold Rolled Sheet - .174 .254 .339

Plates - .309 .977 .110

Source: See text.

79/ In fact, the negative t-values for Japan (as displayed in

table 4.20) indicate that, if anything, the cyclical effect

goes the other way for Japan--h igher relat i ve expor t pr ices

in contractions and lower relative export pr ices in expansions.

Again, however, exce~r bars, this effect is not statistically significant at- 90nventional levels.

-231-

However, the proportion of Japanese employees who are

"contract" employees has been rising in the past ten years.

There is now more than one contract employee for every two

regular Japanese steelworkers. 80/ These "contract" employees

are not considered regular employees of the steel firm as they

are employed by a subcontractor.

Thus, the steel firms can,

and in fact do, layoff these workers in recessions.

In add i t ion to the var iabil i ty in labor costs prov ided by

,#'¡; .

contract labor, a new element of Japanese labor cost variability

has appea red since July, 1975. A spec i al form of unemployii;ent

compensation is now available to depressed industries on an

economywide basis since the passage of the Employment Adjustment

Assistance Law. These unemployment compensation funds, known

as "KOyo Chose i Kyufuk in," pay one-hal f the salary of the wor ker

for layoff days in the case of large firms and two-thirds the

80/ The most detailed data available on this subject is compiled

by the Tekkororen Steel Workers Federation in their publication

Rodo HandbOOk (annual in Japanese). Data for the proportion of

workers who are subcontracted on a plant by plant basis for the

major Japanese steel firms are published there. On the basis

of these data it appears that contract labor has significantly

increased in recent years reaching 57 percent of regular

employees (or 36 percent of total employees) by December 1973.

The estimates of the Bureau of Labor Statistics, Office of

Productivity and Technology, have also shown a rise in the pro- portion of Japanese contract employees. Their unpublished estimates are that contract workers represented between 43 and 65

percent of regular employees in 1976 compared with 24 to 36

percent in 1964. (Their analogous numbers for contract workers

as a percentage of total employees are 28 to 37 percent in 1976

and 18 to 25 percent in 1964.)

r".~ .,';.

~:j

The authors' interviews with the major Japanese firms have

also suppor ted these e~t iIDates.

-232-

salary in the case of small firms. The firm pays the balance

of the worker's salary. The government limits the number of

days for wh ich these unemployment compensat ion funds are ava ilable to 75 days per six months; moreover, these funds are

available only in those industr ies designated as depressed by

the Labor minister. In fact, the open hearth sector of the

steel industry has been continuously designated as depressed

since the law's inception in July, 1975 '¡~~'other steel sectors

have generally been included on the list of depressed industries.

Thus, as a result of this unemployment compensation, Japanese

steel firms can assume that a portion of their regular employees'

salar ies are not fixed dur ing recessions.