Real Wage Rate And Productivity Relationship In The Declining U.S. Steel Industry

Abstract

This study examines the relationship between the real wage rate and productivity in the U.S. steel industry in the critical period of 1963-1988. This period witnessed a declining steel output and employment, increasing productivity, and a slight increasing real wage rate. The severity of the decline was felt in the 1980s. The popular explanation focuses on the nominal wage rate relative to productivity (non-nominal value). The study is based on high-frequency monthly data set on output, employment, productivity, wage rate, factor prices, and national unemployment rate. First, OLS and Instrumental Variable (IV) estimates show that productivity is the key variable for explaining the real wage rate. Second, like in the literature, the study finds that heavy and autonomous capitalization has an impact on the rising productivity. Third, the study identifies an inter-temporal high real wage rate as the driving factor for explaining the short run real wage rate. These results are somewhat sensitive across specifications. Also control factors are constructed for the steel import protection and non-protection regimes. Some econometric modeling issues are addressed. Recognizing that productivity is stochastic and is potentially an endogenous variable, it is instrumented with a set of productivity-related variables including controls for various steel protection and non-protection regimes. Third, the wage in the industry is modeled as a function of exogenous productivity, price of steel products, national unemployment rate, and real interest rate. Serial correlation characterizes the data, and this is corrected with inter-temporal effect of the real wage rate, and with a differencing model. The main results of the study are threefold. I. INTRODUCTIONhis study covers a critical period in the history of U.S. steel industry. The period witnessed declining steel output and employment, increasing productivity, a slight increasing real wage rate, multiple steel protection and non-protection regimes, and overcapitalization. The protection regimes are intended to restrict steel imports, thereby boosting output and employment that are used for constructing the productivity. Without using estimation procedures, Barnett & Schorsch, 1983, for example, explains the industry's nominal wage rate by productivity (output per worker). Nominal wage rate could be rising without being influenced by productivity (non-nominal values).Heavy and autonomous capitalization in the industry is noted to have impact on productivity. Investments leading to capital expansion in the 1950s led to a heavy capitalization, and technology was not upgraded (Barnett & Schorsch 1983, pp. 13, 27). As foreign competitors increased their use of modern technologies (especially the Japanese investments in continuous casting technology in the 1980s), the U.S steel industry was challenged to invest in similar technologies (Hogan, 1983, pp. 6-7, 77, 80, 108-109). With these technical changes U.S. steel used a lot of capital and technology, which boosted product...

Wage–Productivity Relationship in Indian Manufacturing Industries: Evidences from State-level Panel Data

“…However, regarding the direction of the causal links, opinions differ. Yusof (2008) considers real wage to be the main variable that adjusts to maintain cointegration, while Nwaokoro (2006), Khoon and Nyen (2010), Nikulin (2015) and others find that productivity is important in explaining real wage rates. Some of the studies such as Kumar et al (2012) and Millea (2002) reports empirical evidence about the bi-directional relationship between wages and productivity, considering the nature of the wage-setting process in different countries.…”

“…Budd, Chi, Wang, and Xie (2014) and Besley and Burgess (2002) confirm that union density does not affect the average wage level, but is positively associated with aggregate productivity and output. The divergence between wages and productivity has also been discussed in terms of the impact of heavy and autonomous capitalisation on rising productivity (Nwaokoro, 2006), differences in the wage-setting processes in different countries (Millea, 2002), which is closely connected both with the labour market and the consumer goods market (Nikulin, 2015), market frictions, such as search costs (Zoega & Booth, 2005), economic growth, education and skill-level differences (Semeels, 2005) and other social norms (Frazis & Loewenstein, 2006), lags in adjustment and imperfect competition in the product and labour market (Sharpe et al, 2008), degree of unionisation and firm’s size (Organization for Economic Cooperation and Development [OECD], 2001) and labour market policies.…”