Translog Model Of Employment Substitution And Economies Of Scale In The U.S. Steel Industry, 2003

Abstract

The period of 1963-1988 witnessed a tremendous decline in U.S. steel employment while the real wage rate increased slightly in the industry.  There is a popular notion that the nominal wage rate is the major factor in explaining the declining steel employment.  This study examines the decline in a system of input demand equations based on time series data.  The study identifies a heavy cap-italization in the industry as the driving factor for the steel employment decline.  This result supports the claim that the high wage rate in the industry is backed up by high productivity and therefore is not responsible for the steel employment decline.  Also, the study finds a lot of input substitutions.  The study finds diseconomies of scale in the industry, which may explain the decline of the industry.