Variations in Productivity and 

Forest Service Performance in Grade Lumber 

Northeastern Forest 

Experiment Station Industries in Kentucky, 

NE-RP-604 Pennsylvania, and West 

Gilbert P. Dempsey 
Abstract 

Hardwood sawmills are the basic link between a valuable and growing resource 

and the domestic and foreign users of fine hardwood lumber products. Their 

effectiveness is crucial to the growth and development of wood industries among 

locales, states, regions, and countries. Productivity ratios, structural factors, and 

other indicators of economic performance were used to measure the relative 

productive efficiency of the grade hardwood lumber industries (sawmills and 

planing mills) in Kentucky, Pennsylvania, and West Virginia. Their economic 

performance was high compared to the predominantly softwood US. lumber 

industry in 1982. Among the states, labor productivity was greatest in Kentucky; 

product prices received were highest in Pennsylvania; but West Virginia's sawmills were the most economically efficient. Despite undercapitalization, the industries' latent capacity and efficiency potential provide the base and make the 

prospect for socially desirable economic development a highly viable option in all 

three states. 

The Author 

GILBERT P. DEMPSEY is a research economist at the USDA Forest Service's 

Northeastern Forest Experiment Station, Forestry Sciences Laboratory, 

Princeton, West Virginia. He received a B.S. degree from the University of Ken- 1 

I tucky and MS. and Ph.D. degrees from Ohio State University. Since joining the 

Forest Service, he has conducted and supervised research in many areas of 

forest industry development, markets, and international trade, with current 

emphasis on industrial resources usage, performance, and development. 

Manuscript received for publication November 10, 1986 

Northeastern Forest Experiment Station 

370 Reed Road, Broomall, PA 19008 

August 1987 
Introduction 

The hardwood sawmill industry' is the basic link between a 

valuable and growing resource and domestic and foreign 

users of hardwood lumber products. The hardwood lumber 

industry is competitive, allowing cost-reducing efficiencies 

attained by the lumber industry to flow backward and forward in the distribution system: backward to loggers and 

landowners and their suppliers, forward to secondary manufacturers and ultimately the consumer. To a significant 

degree, the economic value and development potential of 

the resource, as well as the operating margins and competitiveness of industrial users of lumber products, are 

affected directly by the efficiency of supply from the primary timber breakdown process-the sawmill. Therefore, a 

better understanding of the factors that influence sawmill 

efficiency will improve the competitiveness of sawmill 

operations and indirectly benefit local communities, landowners, and consumers of hardwood products. 

This paper presents an analysis of the current operating 

and financial structure, performance, and productivity of 

the lumber industries in Kentucky, Pennsylvania, and West 

Virginia-three of the Nation's more important Appalachian 

and northern hardwood-producing states. These states do 

not produce a significant amount of softwood lumber, 

which allows direct examination of the hardwood industry 

when using secondary data. With some exceptions, the 

natural resource bases of the three states are similar; but 

they differ in labor markets, product markets, levels of 

secondary wood product manufacturing, and other factors 

that influence sawmill structure and performance. This 

paper provides baseline information and findings to support 

specific actions for economic improvement. 

The Data 

The primary data source for the study was the most recent 

(1982) Census of Manufactures-the Industry and Geographic Series, which is both the major and most complete 

and consistent source of facts about the structure'and 

functioning of the Nation's manufacturing establishments. 

These sources were supplemented with data from the U.S. 

Department of Commerce, Current Industrial Reports; U.S. 

Department of Labor, Bureau of Labor Statistics; state and 

USDA Forest Service documents; the general literature, 

knowledgeable industry personnel; and my own knowledge 

of lumbering in each of the three states gained over the 

' The lumber-producing sawmill industry (SIC 2421, 

Sawmills and Planing Mills, General), as defined by the 

1982 Census of Manufactures, comprises operating manufacturing establishments primarily engaged in the sawing of 

lumber from logs and bolts or the resawing of cants and 

flitches into lumber and cut stock, and establishments that 

saw railroad ties, lath, and miscellaneous lumber-like products. 

many years of association with the industry. However, as 

with any secondary information, there were data limitations. 

A major criticism of Census data is that production figures 

for hardwood lumber appear to underreport actual production levels. Lumber consumption figures developed by 

Cardellichio and Binkley (1984) suggest that hardwood 

lumber production was underreported by approximately 20 

percent in ,1979. And state forestry personnel generally 

estimate an even larger difference. I agree with this criticism but contend that changes in production as reported 

by the Census do reflect changes in actual production 

levels. 

Too, the reader must be aware that 1982 was an economic 

recessionary year for the general economy. The primary 

overt effect of the economic recession on the lumber industries in the three states was a decrease in demand, which 

resulted in relatively lower than normal quantities of inputs, 

outputs, and prices of outputs. And, quite probably, the 

recession was a partial cause of fewer mills operating in 

each of the states in 1982 than in 1977. Even though each 

state's lumber industry may have been affected differently 

by the recession, the comparability of the operational and 

performance measures is not compromised. In fact, this 

comparison may provide additional insight into the relative 

strengths of the lumber industry in each of the three states 

in terms of their response to the recession. 

Economic Setting 

Lumber was one of the earliest and most important manufacturing industries in Kentucky, Pennsylvania, and West 

Virgina. But with the onset of the Industrial Revolution, 

other manufacturing segments within each state began to 

surpass the lumber industry in economic importance 

(Brown 1958). Today, the grade lumber industry that has 

evolved remains a positive economic force in its predominately rural localities; it is of prime importance to the sustenance and development of timbering as well as secondary 

wood and related manufacturing within its respective and 

neighboring states. 

For example, Pennsylvania's lumber industry produced 

more than 481 MM bf (million board feet) of primary products in 1984 (US. Department of Commerce 1985a,b). A 

conservative estimate of the first-sale contribution of this 

output to the State's rural economies was about $279 

million (U.S. Department of Labor 1983, 1985). These 

receipts averaged over $744,000 for each of the 375 operating establishments surveyed. 

To the extent that these monies were spent within 

Pennsylvania's local economies for products and services, 

and lumber products were further manufactured within the 

State, the turnover or multiplier effect of this income was 
substantial. This is especially true of sawmills since a large 

proportion of the industry's value received for products sold 

is expended for raw materials, supplies, labor, and capital- most of which are locally supplied (91 percent of 

~&ns~lvania'slumber mills' value of shipments is spent 

for these required inputs). For example, with a multiplier 

effect of 3 in 1984, Pennsylvania's lumber industry would 

have generated expenditures of $837 million worth of economic activity at the state level, averaging $2,232,000 per 

sawmill. 

Physical Plant 

The Census of Manufactures' survey of the industry provides data on 751 commercial lumber-producing sawmills 

and planing mills operating in the three states during 

1982-375 in Pennsylvania, 195 in Kentucky, and 181 in 

West Virginia. Included in the survey population were all 

establishments of multi-unit companies and all single-unit 

companies in the industry with five or more employees. 

Further, the Bureau, recognizing that there are many 

smaller mills within the industry, developed data for these 

establishments from administrative records and other institutional sources. 

The significance of the small lumber mill in these states is 

evident by the fact that state forest product industry directories report 1,892 operational sawmills located within the 

tristate area in 1984 (Table 1). Although not necessarily 

full-time operations, small hardwood sawmills produce a 

considerable amount of lumber, especially during periods 

of high demand. And, theoretically, assuming market 

accessibility and land, labor, and capital resources, these 

mills could contribute significantly to production given the 

proper stimulant; for example, substantial and stable price 

increases for lumber products and/or national emergencies, 

as occurred in 1941. 

Although the Census recognizes the existence of small 

sawmills within the industry, many of these are familyowned and operated and may not be listed in administrative records. The production at these small mills is, 

therefore, the most likely source of the underreporting 

since the industry in each of these states changes slowly. 

Further, the count and patterns of operations for several 

years prior to 1982 were essentially the same as those 

shown in 1984. 

Productive Factor Outputs and 

Performance 

The hardwood lumber industry's performance is influenced 

by many social and economic conditions (Ellefson and 

Stone 1984). But given access to economic resources and 

markets, and a viable framework within which to conduct 

Table I .-Number and annual production class of operational 

sawmills in Pennsylvania, Kentucky, and West Virginia, 

1 98da 

Production 

class 

Mills 

(MM bf) Pennsylvania Kentucky West Virginia 

10 or more 

5 to 10 

2 to 5 

1 to 2 

Number 

5 5 4 

53 17 20 

101 73 36 

1 16 83b , 40 

500 M bf to 1 MM bf 265 66 45 

< 500 M bf + custom mills 428 256 279 

All mills 968 500 424 

aAssumed operational, but may or may not have been in operation during 

survey year. 

bEstimate based on Kentucky wood industry directories for prior years and 

patterns evidenced in Pennsylvania and West Virginia. 

Source: Lohr 1985; Thorpe 1984; Warder 1984. 
business, the cost structure and output of the industry 

(firm) are fundamental to its productivity and overall performance. Three of the principal and most useful outputs for 

measuring the effectiveness of the industry in terms of 

economic efficiency and socially desired performance are 

(1) physical products produced, (2) value received for products sold, and (3) value added by the manufacturing 

process. 

Lumber Products Output 

Total reported US. hardwood lumber production in 1982 

amounted to 5.1 billion board feet, of which about 17.9 

percent was produced in Kentucky, Pennsylvania, and 

West Virginia. However, compared with the previous 5 

years, hardwood lumber production was lower in 1982 for 

all three states, as well as for the United States. 

In 1982, the tristate sawmill industry produced 938 MM bf 

of lumber products, of which 96.7 percent was hardwoods 

(Table 2). This output relationship was almost the opposite 

of that for the U.S. lumber industry, which was 83.1 percent softwoods and 16.9 percent hardwoods in 1982. Total 

hardwood lumber production per establishment averaged 

1.249 MM bf, or about one-fourth as much per establishment as the predominantly softwood U.S. lumber industry. 

This reflects the effect of the traditionally larger capacity of 

output of softwood mills due to both the type of productprincipally construction lumber of the less dense coniferous 

species versus grade lumber of the denser deciduous 

species-and differences in quantity and quality of the 

inputs, especially capital and technology. 

Among the states. In 1982, Pennsylvania's sawmills led the 

tristate area in total lumber production with 416 MM bf, 

96.6 percent of which was hardwoods. Kentucky's lumber 

output was the second largest at 270 MM bf, but less than 

two-thirds that of Pennsylvania. And West Virginia's lumber 

output, normally higher than Kentucky's, was only threefifths that of Pennsylvania, or 252 MM bf in 1982. Like 

Pennsylvania, most of the lumber output in both Kentucky 

and West Virginia was composed of hardwoods-95.9 

percent in Kentucky and 97.6 percent in West Virginia. 

Kentucky's lumber industry had the second largest average 

volume of output of lumber per mill per year at 1.385 MM 

bf, but it had the highest average output per employee and 

production hour worked-significantly higher than Pennsylvania and West Virginia. Kentucky's average output per 

employee was 135.0 M bf (thousand board feet), 12.5 

percent higher than West Virginia's and 7.1 percent more 

than Pennsylvania's. 

Data are not available to explain conclusively the large 

differences in gross physical output per employee between 

Kentucky's sawmill industry and those of West Virginia and 

Pennsylvania. However, the most probable partial explanations are: 

1. Nature of output: Kentucky ranked sixth among the 

Nation's top 10 users of hardwood lumber for pallet 

production in 1984 and held that approximate position in 

1982. It also had a strong treating industry. Consequently, compared with Pennsylvania and West Virginia, 

Kentucky's lumber mills likely produced a higher proportion of industrial products. Such stocks require somewhat less time to process than grade lumber outputs. 

2. Nature of physical plant: Based on output, Kentucky's 

lumber industry has shown signs of expanding over the 

past 10 to 15 years (Schallau et al. 1985); thus, its 

Table 2.-Lumber products output by tristate and U.S. lumber 

industries, by area (SIC 2421), 1982 

Area 

Total lumber output by: Average lumber output by: 

Hardwood Softwood Establishment Employee 

---------- MM bf ---------- MM bf M bf 

Pennsylvania 402 14 1.109 126.1 

West Virginia 246 6 1.392 120.0 

Kentucky 259 11 1.385 135.0 

Totallmean 907 31 < > 1.249 126.8 

United States 5,061 24,949 4.751 227.5 

Source: U.S. Department of Commerce, Bureau of the Census 1984a,b,c,d, 

1985 a, b. 
lumber mills may have a lower ratio of labor to 

undepreciated capital assets than either Pennsylvania or 

West Virginia. This would indicate the operation of 

newer and perhaps more productive capital plant, 

machinery, and equipment mixes. 

Value of Products Sold 

The tristate sawmill industry received $382.8 million from 

lumber products sold in 1982; this represents about 3.8 

percent of the total value of lumber shipped by the U.S. 

lumber industry (Table 3). Receipts averaged $51 0,000 per 

establishment, or about 32 percent of that received by the 

average U.S. sawmilling establishment. More telling, however, is that tristate industry receipts per unit of product 

sold averaged $408 per M bf of product-only 21.8 percent 

higher than that received by the predominantly softwood 

U.S. sawmill industry. Although the difference in receipts 

reflects a higher unit value for the hardwood output, it is 

less than might be expected given the prevailing market 

prices of that period. 

Among the states. Pennsylvania's sawmills, with the largest 

output and highest prices received per unit, led in total 

value of shipments with $193.1 million in 1982-over twice 

that of West Virginia's shipments, valued at $95.5 million, 

and Kentucky's, $94.2 million. West Virginia mills, due to a 

smaller number but larger average output per mill, led in 

value of shipments with $528,000 per establishment. This 

was only slightly higher than Pennsylvania's $515,000 

receipts per establishment, but 9.3 percent greater than 

Kentucky's $483,000 per unit. 

In all other breakdowns of values received, however, 

Pennsylvania's sawmill industry led those in West Virginia 

and Kentucky: Pennsylvania's firms received an average of 

$464 per M bf for their lumber products sold and shipped 

compared to West Virginia's $379 per M bf and Kentucky's 

$349 per M bf. This tends to support earlier evidence that 

Pennsylvania is milling higher valued logs, the probable 

result of a larger proportion of higher valued species such 

as red oak. Other viable explanations for the higher output 

prices received by Pennsylvania sawmillers could be: (1) 

the innate strength of the State's internal market for lumber 

products; (2) a higher proportion of unmodified lumber 

resales; (3) more direct marketing; (4) more specialized 

services being provided by the industry, such as planing, 

drying, and milling-to-order; and, perhaps, (5) more vertical 

integration in the industry, thus allowing cost-center financial accounting adjustments. 

The differences in prices received between West Virginia's 

and Kentucky's industries were small and probably can be 

explained more by log size, quality, and species than by 

either specialized or secondary processing. A larger proportion of Kentucky's lumber products is thought to be 

moving into the growing industrial product markets-such 

as the treating and pallet stock industries, which use the 

mixed hardwoods and require less processing than grade 

lumber. 

Value Added by Manufacture 

The value added by manufacturing measure is considered 

the best general indicator of a firm's or industry's economic 

performance (Ellefson and Stone 1984). The dollar value 

added by manufacture is that portion of the value of shipments (total value received for products sold or otherwise 

transferred) that remains after deducting total material 

costs inputed into the production process. It is this portion 

of the receipts for products sold that is available for payments to labor, capital, rents, and profits. 

Table 3.-Value received from lumber shipments by tristate and 

U.S. lumber industries, by area (SIC 2421), 1982 

Value of shi~ments bv: 

Area 

Thousand 

Total Plant Employee board foot 

- - - - - - - - - - -Dollars- - - - - - - - - - - 

Pennsylvania 193,100,000 515,000 58,500 464 

West Virginia 95,500,000 528,000 45,500 . 379 

Kentucky 94,200,000 483,000 47,100 349 

Totallmean 382,800,000 510,000 51,700 408 

United States 10,065,200,000 1,593,600 76,300 335 

Source: US. Department of Commerce, Bureau of the Census 1984a,b,c,d, 

1985a,b, 1986. 
In 1982, the Kentucky, Pennsylvania, and West Virginia 

sawmill industries earned $139 million over and above the 

cost of materials, or about 4.3 percent of the total value 

added by the U.S. lumber industry (Table 4). Value added 

by tristate mills averaged 36.3 percent of their total value of 

shipments compared to 32.2 percent for the United 

States-which indicates a relatively lower cost for materials 

than that experienced by the softwood-dominated U.S. 

lumber industry. 

Value added for the tristate lumber industry averaged $148 

per M bf compared to $108 per M bf for the Nation's sawmills, indicating a more effective performance per unit of 

output. However, due to the differences in physical output, 

the tristate average value added per employee, production 

worker, and production worker hour were below that of the 

U.S. industry by 23.5, 23.6, and 18.8 percent, respectively. 

Among the states. West Virginia's lumber industry earned 

the highest average value added among the three states, 

which, at $157 per M bf, was 23.6 percent higher than 

Kentucky's earnings but only 0.6 percent higher than 

Pennsylvania's. As a consequence of having the highest 

value added per M bf combined with the largest average 

output per mill, West Virginia had the largest dollar volume 

of value added per mill at $219,000, 24.4 percent greater 

than Kentucky's average sawmill, and 26.6 percent larger 

than that earned by Pennsylvania's mills. 

However, Pennsylvania, due primarily to its substantially 

higher value of shipments per unit of product, led both 

West Vriginia and Kentucky in value added returns per 

employee by at least 5.9 percent. Overall, though, West 

Virginia's sawmill industry had the best performance in 

terms of value added-41.5 percent of its value of shipments compared to 36.5 percent for Kentucky and 33.7 

percent for Pennsylvania. 

Productive Factor Inputs and 

Performance 

A statement of inputs is necessary not only to measure but 

to understand an industry's operating cost structure and 

performance. More important, this statement provides an 

insight into the general economy in which the industry 

operates and the magnitude of its relationships within and 

to various segments of that economy. For example, lumberproducing operations affect and are affected by resource 

and product markets, labor and capital markets, and institutional and other factors both within and well beyond their 

own immediate operating area. In turn, occurrences in any 

of these factors that negatively affect inputs also affect 

output and supply, demand for the product, and ultimately 

the viability of the firm and industry and all segments of the 

economy that depend on the industry's output. The factor 

inputs on which we concentrate are labor, capital, and 

materials. 

Employment 

The combined employment in the tristate sawmill industry 

totaled about 7,400 full-time persons in 1982-3,300 in 

Pennsylvania, 2,100 in Kentucky, and 2,000 in West Virginia (Table 5). Nationally, this work force represented 

about 5.6 percent of the lumber industry's total employment but only 3.1 percent of the total lumber product's 

output in 1982. Assuming similar coefficients of specialization in primary product manufacture, this most likely 

reflects the relatively higher degree of labor intensity in the 

production of hardwoods versus softwoods. 

Since the demise of the region's virgin timber resources, 

the small- to medium-size mills have been predominant in 

the hardwood industry (Simmons 1960). This situation is 

evident in the tristate hardwood industry and is reflected 

partially in plant employment. Of the 751 sawmills in PennTable 4.-Value added in lumber production by tristate and U.S. 

lumber industries, by area (SIC 2421), 1982 

Value added bv: 

Thousand Value of 

Area Total Plant Employee board foot shipments 

- 

- - - - - - - - - - - -Do//ars - - - - - - - - - - - - Percent 

West Virginia 39,600,000 219,000 18,900 157 41.5 

Pennsylvania 65,000,000 173,000 19,700 156 33.7 

Kentucky 34,400,000 176,000 17,200 119 36.5 

Totallmean 139,000,000 185,000 18,800 148 36.3 

United States 3,237,500,000 513,000 24,500 108 32.2 

Source: U.S. Department of Commerce, Bureau of the Census 1985a,b, 1986. 
sylvania, Kentucky, and West Virginia, only 112, or 14.9 

percent, employed 20 or more persons per plant in the 

manufacture of lumber products. 

This proportion is substantially below the average for the 

U.S. lumber industry (24.7 percent) and that for all U.S. 

manufacturing, where 34.4 percent of the firms employed 

20 or more persons. But it is typical in the hardwood lumber industry, where mills tend to be smaller in both physical capacity and output than their counterparts in 

softwoods. This is due partly to the type of outputs, e.g., 

emphasis on grade versus construction lumber; the physical differences in breaking down the physiologically denser 

hardwoods; and lower technology and automation in the 

smaller hardwood mills. 

Too, tristate hardwood lumber mills are smaller than establishments in U.S. "All Manufacturing" due much to the 

limits imposed by raw material orientation (located close to 

resource); traditional orientation to one-shift operations, 

(which may be totally rational due to the cyclic nature of 

demand for lumber); and the cyclic nature of the market for 

output (mills must be of a size to minimize risk of a rapidly 

fluctuating market demand and still maintain stability of 

operations-especially labor and capital use). 

Among the states. West Virginia's industry averaged the 

most workers per plant and had the largest proportion of 

total mills employing 20 or more persons (20.1 percent), 

followed by Kentucky (13.8 percent), and Pennsylvania 

(12.8 percent). In absolute terms, Pennsylvania had the 

largest number of mills (48) employing 20 or more people, 

but the lowest proportion of such plants to its total industry 

among the three states. This latter measure reflects the 

disproportionately large number of very small sawmills in 

Pennsylvania compared to Kentucky or West Virginia. 

Fundamentally, the differences in the structure of the 

industries among the three states are due largely to the 

structure of the markets for lumber products in each. For 

example: (1) Pennsylvania has a variety of well-developed 

but growing internal markets for the full range of hardwood 

lumber products. Such markets would provide substantially 

greater market opportunities for mills with smaller than a 

medium-size output and specialty mills; (2) West Virginia 

has a limited secondary wood industry and thus must sell 

most of its output to external markets-and probably more 

through brokers or other middlemen; (3) Kentucky has a 

growing internal market for lumber products but still must 

market most of its production externally. Consequently, 

both West Virginia and Kentucky would tend to move 

larger, more homogeneous shipments of lumber products 

than Pennsylvania. 

Labor Force Composition 

Table 6 presents the composition of the tristate work force 

in terms of (1) production workers, or those plant employees (up through the line-supervisor level) engaged in all 

plant, direct production-related activities; and (2) 

"nonproduction" employees, or managers above the linesupervisor level and other production support workers, 

including sales, clerical, technical, professional, and other 

administrative personnel. 

In 1982, the tristate lumber industry employed 7,400 

full-time workers, 6,400 (86.5 percent) of whom were production employees. The industry had about the same percentage of production workers as the U.S. lumber industry 

Table 5.-Plant employment in tristate and US. lumber indu~tries 

and U.S. All Manufacturing, by area (SIC 2421), 1982 

Area 

Total Plants with 20 or Employees 

employment more employees per plant 

- - - - - - - - - - - -Number- - - - - - - - - - - - 

Pennsylvania 3,300 48 8.8 

West Virginia 2,100 37 11.6 

Kentucky 2,090 27 10.3 

Totallmean 7,400 112 9.9 

United States 131,900 1,557 20.9 

U.S. all manufacturing 19,094,100 123,163 53.3 

Source: U.S. Department of Commerce, Bureau of the Census 1985a.b, 1986. 
but higher percentages than the U.S. lumber and wood 

products sector (83.2 percent) and U.S. "All Manufacturing" (64.9 percent). This reflects a high production labor 

intensiveness for both the hardwood and softwood sawmilling firms compared to manufacturing in general, and 

underlines the relative dearth of nonproduction personnel 

expertise in the lumber industries compared with most 

other types of manufacturing. 

Among the states. West Virginia's sawmill industry had the 

highest percentage of total employees (90.4) in the production category-a 9.5 to 1 ratio of production to nonproduction personnel-or about one administrative employee for 

every 9.5 production line workers. Kentucky and Pennsylvania both had about 85 percent of their total work force in 

a production worker capacity, and production to nonproduction worker ratios of 5.7 to 1 and 5.6 to 1, respectively. 

Even considering the vagaries caused by the rounding of 

data, West Virginia's ratio of production to nonproduction 

personnel is quite different from those of Kentucky, Pennsylvania, or the United States. Probable reasons for the 

difference are: (1) less on-site emphasis on marketing, 

market development, technical development, and indirect 

production management activities by individual mills; and 

(2) a greater reliance on outside establishments for these 

services. 

West Virginia had the lowest ratio of management to labor 

within the tristate lumber industry and was about 50 percent lower than the ratio for the U.S. lumber industry. 

Under such circumstances, the mill manager could pay 

only fleeting attention to the firm's transactional requirements. And since there is no indication that the cost of 

purchased services in West Virginia's sawmills are disproportionate to that of the other two states or the U.S. lumber 

industry, it suggests that these services, if being received, 

come from outside the establishment from other firms 

either within or outside of the State. 

In fact, both situations probably are applicable; that is, 

medium to larger mills that are owned by corporations or 

other entities located elsewhere probably receive the more 

critical administrative support services from their respective 

headquarters rather than having support personnel at the 

production site. In such circumstances, the mill personnel 

on the production site can give their full attention to the 

production process. Too, many of the smaller independent 

mills probably are receiving much of the more critical 

nonproduction services such as market information, technical information, and other professional advice from outside 

(nonowned) vested-interest sources such as brokers, other 

middlemen, and suppliers. 

The differences in the ratios of production to nonproduction 

personnel employed by tristate sawmills suggest that, 

compared to West Virginia, the mills in Kentucky and Pennsylvania probably: (1) had more administrative andlor 

technical expertise within their on-site staffs; and (2) had 

greater flexibility (and, possibly, autonomy) in making production, marketing, and development decisions; and, thus, 

(3) placed less reliance on outside sources for critical, 

nonproduction services. Such differences in operational 

characteristics have important implications for the development of both private and institutional efforts and strategies 

to effect structural changes, growth, and development in 

the industry. 

Table 6.-Composition of labor force in tristate and U.S. lumber 

industries, by area (SIC 2421) and U.S. All Manufacturing, 

1982 

Area 

Employees 

Production Nonproduction Ratio 

- - - - - - -Number - - - - - - - 

Pennsylvania 2,800 500 5.6 to 1 

West Virginia 1,900 200 9.5 to 1 

Kentucky 1,700 300 5.7 to 1 

Totalimean 6,400 1,000 6.4 to 1 

United States 1 13,900 18,000 6.3 to 1 

U.S. all 12,400,600 6,693,500 1.9 to 1 

manufacturing 

Source: U.S. Department of Commerce, Bureau of the Census 1985a,b, 1986. 
Production Worker Employment 

The number of plant hours worked by production personnel* varied significantly between the lumber industries of 

two of the three states and among all three states and the 

Nation's industry. The 6,400 production personnel worked 

11.6 million plant-hours in thedirect production of lumber 

products in 1982 (Table 7). They averaged 15,400 workhours per mill, or less than one-half that of the average 

(34,800) worked in the higher capacity US. lumber 

industry. 

As a group, the tristate mills averaged operating 7.86 manyears, or 92.5 percent of the production worker man-years 

available based on the current full-time manpower 

employed. This represented about 1,294 man-hours per 

plant less than capacity. Using a conservative estimate of 

plant production hours (1 ,960)3 available per worker-year, 

the tristate lumber industry was underemployed by almost 

1 million production hours in 1982. Downtime could have 

been due to sickness, accidents, lack of demand, weather, 

and many other factors. Assuming that downtime could 

have been prevented, and an average output per production worker hour, the tristate industry could have produced 

additional lumber products valued at nearly $33 million with 

the unused 1 million production man-hours. 

The typical tristate sawmill production worker was 

employed 1,813 hours-all less than full-time even when 

excluding paid lumber-industry holidays and vacation time. 

Workers averaged about 145 hours less than a full work 

year per production worker, and 114 hours per person less 

than the average for the U.S. lumber industry in 1982. The 

lack of full-time employment over an extended time would 

be expected to contribute to employee turnover and other 

labor-related problems within the industry (Wolf 1977). 

Among the states. The sawmill production hours worked by 

individual states were: Pennsylvania, 5.3 million; West 

Virginia, 3.4 million; Kentucky, 2.9 million-all of which 

excluded paid vacation time, holidays, and sick leave. 

Pennsylvania mills operated closest to a full work year by 

providing an average of 1,893 hours of work per worker, or 

about 96.6 percent of full-time employment. This was about 

the same as the "All Manufacturing" average but still less 

than that provided by the U.S. lumber industry. Pennsylvania averaged 7.19 work man-years per establishment of an 

available 7.47 man-years-or 96.3 percent of the labor 

force capacity. With the available labor, Pennsylvania 

Production-worker hours are those hours actually 

worked or paid for at the plant, including actual overtime 

hours. 

A conservative estimate of production worker manyear is 1,960 plant hours per worker. 

industry lost about 0.19 million production hours of operating time, or about 507 hours per plant. 

Kentucky and West Virginia mills operated at an annual 

average rate substantially less than that of Pennsylvania or 

the U.S. lumber industry. These states provided 1,706 and 

1,790 annual hours of work per production worker, or 254 

and 170 hours each less than full-time work. Based on their 

available production man-hours and current labor force, the 

Kentucky and West Virginia lumber industries lost about 

0.430 million hours of work (2,205 hours per plant) and 

0.320 million hours (1,768 per plant) based on their available production hours and current labor force. The industry 

in Kentucky averaged working 7.6 man-years per establishment of an available 8.71 man-years, or 87.3 percent of 

capacity of the labor force. The West Virginia lumber 

industry averaged working 9.59 man-years per plant of an 

available 10.48 man-years, or 91.5 percent of labor force 

capacity. 

The lack of full-time employment over an extended period 

could lead to undesirable consequences in the tristate 

lumber industry, especially in Kentucky and West Virginia. 

Unless the labor market is of such a nature as to condone 

the situation, underemployment would be expected to: (1) 

result in higher than normal labor turnover (Wolf 1973, 

1977); (2) lessen a firm's competitive hiring ability in the 

labor market, especially in employing the desired quality of 

labor; (3) cause higher overhead costs; and (4) the latter, 

when combined with the initial lower productivity and 

higher accident potential of new employees (Wolf and 

Dempsey 1978), would bring about higher marginal costs 

per unit of output. 

Payroll and Wages 

Total employee payroll for the tristate sawmill industry in 

1982 was $78.4 million, of which $65.2 million (83.2 percent) went for wages for production workers (Table 8). This 

included total payments made directly to employees for all 

plant hours worked, including paid sick leave, holidays, and 

vacation time. 

The proportion of total payroll devoted to production workers was slightly higher than that for U.S. lumber industry 

(81.8 percent), but substantially higher than that for U.S. 

lumber and wood products sector (76.3 percent) and U.S. 

"All Manufacturing" (53.9 percent). Such relatives further 

reflect the tristate hardwood lumber industry's direct production labor intensiveness, and probable lack of emphasis 

on transactional activities-marketing, for example. 
Table 7.-Production worker employment in tristate and U.S. lumber 

industries, by area (SIC 2421) and U.S. All Manufacturing, 

1982 

Arealindustry 

Hours of Average Average 

production . hours1 hours1 

worked plant worker 

- - - - - - - - - - - -Number- - - - - - - - - - - - 

Pennsylvania 5,300,000 14,100 1,893 

West Virginia 3,400,000 18,800 1,790 

Kentucky 2,900,000 14,900 1,706 

Totallmean 11,600,000 15,400 1,813 

United States 21 9,500,000 34,800 1,927 

U.S. all 23,538,300,000 65,700 1,898 

manufacturing 

Source: U.S. Department of Commerce, Bureau of the Census 1985a,b, 1986. 

Table 8.-Labor costs in tristate and U.S. lumber industries, by area 

(SIC 2421) and U.S. All Manufacturing, 1982 

Total Total Labor cost Percent 

Area payroll wages Supplementala Total wages 

--------- -Million dollars- - - - - - - - - - 

Pennsylvania 38.0 31 .O 8.8 46.8 66.2 

West Virginia 20.7 17.9 5.5 26.2 68.3 

Kentucky 19.7 16.3 4.7 24.4 66.8 

Totallmean 78.4 65.2 19.0 97.4 66.9 

United States 2,020.2 1,651.7 468.7 2,488.9 66.4 

US. all 379,626.5 204,787.2 80,993.4 460,619.9 44.5 

manufacturing 

aA firm's estimated legal and voluntary costs attributable to all employees 

and expressed as percent of total payroll. 

Source: U.S. Department of Commerce, Bureau of the Census 1984a,b,c,d, 

1986. 
These factors differed substantially among the three states. 

Pennsylvania and Kentucky had similar proportions of total 

payroll going to wages-81.6 and 82.8 percent. But West 

Virginia had 86.5 percent of its payroll devoted to wages, 

which is consistent with its greater percentage of production versus nonproduction employees. 

Supplemental labor costs. In addition to payroll costs, supplemental labor costs, or those costs attributable to the 

employment of all human capital in addition to wages and 

salaries, were estimated for the tristate lumber industry for 

1982.4 These costs include (1) legally required paymentsthose required by state or Federal statutes such as Social 

Security, Unemployment Compensation, and Workmen's 

Compensation; and (2) payments for voluntary programs not 

specifically required by legislation-such as life insurance 

premiums, premiums for supplemental accident and sickness insura-nce, pension plans, supplemental unemployment compensation, welfare plans, stock purchase plans, 

and deferred profit-sharing plans. They exclude such 

company-sponsored perquisites such as cafeterias, in-plant 

medical services, free parking, employee uniforms, etc. 

Supplemental labor costs for the tristate sawmill industry 

totaled $19 million in 1982, or 24.2 percent of the total 

payroll compared with 23.2 percent for the U.S. industry. 

Assuming that the distribution of these costs was similar to 

the average for the U.S. lumber industry, legally required 

costs amounted to 48.9 percent and voluntary costs to 51.1 

percent of the total supplementary labor costs.= 

Among the individual states, Pennsylvania and Kentucky 

had similar proportions of total payroll devoted to supplemental labor costs, 23.2 and 23.7 percent. In effect, these 

added labor charges increased the average cost per 

employee over payroll by $2,667 in Pennsylvania and 

$2,350 in Kentucky. Pennsylvania's total dollar cost was 

higher due to a higher annual wage per employee. West 

Virginia had an estimated 26.7 percent of its lumber industry payroll paid out in supplemental labor costs; this was 

substantially higher than in Pennsylvania, Kentucky, or the 

U.S. industry average. West Virginia's added cost per 

employee was $2,619, or about the same as the total contribution per employee in Pennsylvania, which was based 

on a much higher wage. 

The West Virginia lumber industry's supplemental labor 

cost rate was 15.1 percent higher than that of Pennsylvania 

or the U.S. sawmill industry. This difference resulted in a 

relatively higher total labor cost, $333 per employee - per 

Estimates based on "All Manufacturing" average 

within each respective state. 

Estimates based on U.S. lumber industry average. 

year. Effectively, this additional cost reduced the industry's 

net income by $699,300. Had the "extra costJ' not been 

incurred, an additional $699,300 could have been added to 

total payroll, which would have remained in the local economies. Or another $0.7 million could have been used for 

capital improvements to increase productivity-which might 

have resulted in longer term improvements in wages. 

Among possible legal and voluntary factors affecting supplemental labor costs are required Federal and state programs, collective bargaining, additional insurance, and 

labor profit and welfare plans of various types. Although 

explanatory data are inconclusive, the West Virginia lumber 

industry may have had higher supplemental labor costs in 

1982 due to: (1) Insuring more heavily than operators in 

Pennsylvania or Kentucky to minimize potentially uninsured 

liabilities resulting from accidents and sickness. (2) The 

effective (loaded, based on firm experience) rates for both 

Workmen's Compensation and Unemployment Compensation may be higher in West Virginia than in Pennsylvania or 

Kentucky. Either of these explanations would indicate 

(1) inadequacies in legislation governing the respective 

social programs; and (2) possible operational inadequacies 

that discourage stability in the labor force and adequate 

working conditions. The result of either would be to reduce 

the funds available and, thus, the flexibility of the State's 

firms and industry to invest in more effective human and 

physical capital and operating modes to increase productivity. 

Total Labor Costs 

With the addition of supplemental labor expenditures to 

develop total labor costs, the manpower cost relationship 

among the Pennsylvania, Kentucky, and U.S. industries 

remained essentially the same. West Virginia showed a 

disproportionate increase in total labor costs due to its 

higher percentage of payroll going to legal and voluntary 

labor costs. 

The tristate industry's total expenditures for all employees 

amounted to about $97.4 million in 1982, with wages to 

production workers representing 66.9 percent of that 

amount. This was comparable to the average of 66.4 percent for wages paid by the US. sawmill industry during the 

same period. However, due to lower wages and fewer 

hours worked, the total annual labor costs per employee for 

the tristate lumber industry was.substantially lower than 

"All Manufacturing" in each respective state. Viewed as 

earnings, sawmill labor received 52.9 percent less than "All 

Manufacturing" in West Virginia, 47.6 percent less in Kentucky, and 41.7 percent less in Pennsylvania. 

Among the states. Pennsylvania's total expenditures for 

labor-including employee salaries, wages, and supplemental costs-were the highest among the three states at 

$46.8 million in 1982, but it had the lowest proportion going 

to wages (66.2 percent). The latter was due mostly to the 
higher relative earnings of nonproduction workers and the 

1 lower ratio of production to nonproduction workers in Pennsylvania. Kentucky's total expenditures for labor were 

slightly more than one-half that of Pennsylvania for 1982, I but the percentage going to wages was essentially the 

same (66.8 percent). West Virginia's total expenditures for 

1 labor were slightly higher than Kentucky's, due not to 

higher average earnings but to a greater number of per1 sons employed. 

However, West Virginia's lumber industry had 68.3 pecent 

of its total expenditures for labor being paid as wages, 

which was noticeably higher-from 2.2 percent to 3.2 per- I cent higher-than the proportions paid by Kentucky, Pennsylvania, and the United States. The difference is explained 

by: (1) the higher ratio of production to nonproduction 

I workers employed in West Virginia's lumber industry compared to the other states; and (2) a higher percent of total 

payroll devoted to supplemental labor costs-15.1 percent 

higher than Pennsylvania, for example. Still, due to higher 

wages and salaries, Pennsylvania's mills averaged the 

highest total labor cost per employee at $14,182 per year, 

or about 13.7 percent greater than that for West Virginia 

and 16.2 percent higher than that for Kentucky. 

From the employee's perspective, most of the differences 

I in total labor costs per employee between the sawmill 

industries and "All Manufacturing" in Kentucky, Pennsylvania, and West Virginia were derived from lower earnings 

I per worker. Consequently, on wages alone, general manufacturing in each state had a substantial comparative 

I advantage when competing for labor in the external labor 

market; and this does not include working conditions, 

upward mobility potential, and other factors critical to a 

I 

firm's ability to employ and retain highly productive labor. 

Thus, assuming the existence of a dual labor market and a 

mobile labor force, such differences in earnings suggest I that the lumber industries of all three states may be bidding in a secondary labor market wherein the training, 

skills, and work (job) behavior of the labor force is less than 

I ideal for optimum firm efficiency (White 1980). 

Capital Expenditures 

In recent years, the quantity and quality of capital investments in the production process have become increasingly 

critical to the firm's efficiency. Table 9 shows the industry's 

expenditures in 1982 for both new and used machinery, 

equipment, buildings, and other permanent physical additions and major alterations to plant capacity. Because a 

limited amount of industry data has been published on the 

capital structure and expenditures of the tristate sawmill 

industries, only new and used capital expenditures are 

presented; the latter were estimated using the U.S. lumber 

industry average as a proxy. 

For the tristate lumber industry, capital expenditures for 

new and used machinery, equipment, buildings, and other 

structures totaled $14.22 million in 1982, or 2.6 percent of 

the total expended by the Nation's lumber industry. Assuming that tristate mills purchased used capital goods at the 

same rate as the Nation, a ratio of 0.316 to 1, then 75.9 

percent (or $10.8 million) of the tristate sawmill industry's 

total capital expenditures were investments in new physical 

plant and equipment. The remaining 24.1 percent of total 

expenditures were for used plant and equipment. If true, 

this would have been a substantially greater percentage of 

total expenditures for used machinery, equipment, and 

physical structures than occurred in each state's "All Manufacturing" sector, as well as in most other segments of 

their respective lumber and wood products sectors. Further, it opens the question of the occurrence of consolidation in the tristate lumber industry. 

The tristate sawmill industry's investments in new capital 

equipment and physical plant accounted for 28.1 percent of 

the total new investments made by the area's lumber and 

wood products sector in 1982. More significantly, however, 

these industries had investments in new capital plant per 

employee substantially below the average for the Nation's 

sawmills: Pennsylvania invested 45.1 percent less; Kentucky, 55.5 percent less; and West Virginia, 65.2 percent 

less, indicating a much greater reliance on capital by the 

Nation's predominantly softwood sawmill industry and the 

relative undercapitalization in the hardwood lumber industries. Further, the lack of adequate capital is thought to be 

especially prevalent in the "middle-size" hardwood mills. 

Pennsylvania, with the largest sawmill industry, led in total 

expenditures for new and used capital plant and equipment 

with a $7,500,000 investment in 1982-over twice that of 

Kentucky ($3.69 million) and West Virginia ($3.03 million). 

Total expenditures per lumber mill in Pennsylvania averaged $20,000, which was about equal to the average 

investment per plant for "All Manufacturing" in the state. 

And although Kentucky's and West Virginia's lumber mills 

were larger than Pennsylvania's in terms of physical output, they made less investment per mill ($18,897 in Kentucky and $16,724 in West Virginia), both significantly 

below that of Pennsylvania mills, and substantially below 

each respective state's average for "All Manufacturing" 

plants. 

However, investment in new capital plant and equipment is 

a more relevant indicator of technical innovation in the 

tristate lumber industry. In two of the states, new capital 

investment per employee averaged more than that for each 

state's total lumber and wood products industry: 28.8 percent greater in Pennsylvania and 7.1 percent more in Kentucky. West Virginia's sawmills had the lowest new capital 

expenditure per employee, at $1,095; this figure was 22.1 

percent less than the average expenditure by the State's 
Table 9.-Capital expenditures in tristate lumber and lumber and 

wood products sectors, and All Manufacturing, by area, 

1982 

Investments in: 

New capital Used capital Capital 

Area and Per per expenditures 

sector employee employeea by employee Total 

- - - - - - - - - - - -Dollars- - - - - - - - - - - - 

Pennsylvania 

 umber^ 1,727 545 2,273 7,500,000 

Lumberlwood productsC 1,341 152 1,493 25,380,000 

All manufacturing 2,873 203 3,076 3,630,500,000 

Kentucky 

Lumberb 1,400 445 1,845 3,690,000 

Lumberlwood productsC 1,307 148 1,456 1 0,910,000 

All manufacturing 4,042 858 4,900 1,208,500,000 

West Virginia 

Lumberb 1,095 348 1,443 3,030,000 

Lumberlwood productsC 1,405 1 60 1,564 6,570,000 

All manufacturing 4,110 276 4,386 420,100,000 

United States 

Lumberb 3,145 995 4,139 546,000,000 

Lumberlwood productsC 2,498 282 2,780 1,602,400,000 

Note: Data may not total due to rounding. 

a Estimated for lumber industry in three states based on U.S. lumber industry 

(SIC 2421) average. 

SIC 2421. 

SIC 24. 

Source: U.S. Department of Commerce, Bureau of the Census 1985a,b, 1986. 

total lumber and wood products sector. This occurred 

despite the sawmill industry's prominence in the state 

I lumber and wood products sector, accounting for 39 percent of that sector's total capital investment in 1982. 

I 

Material Costs 

Materials constitute a major part of the total cost of produc- l ing grade hardwood lumber. Material costs represent, in 

this context, all physical items put into production during 

the year by the firm and industry. Based on the Census of 

Manufactures definition, the "materials costs" classification broadly includes: raw materials, parts, containers, 

production and operating supplies, energy, production 

contract work, and products bought and resold in the same 

condition. 

In 1982, material costs for lumber production in Pennsylvania, Kentucky, and West Virginia totaled $234 million 

(Table lo), or about 3.5 percent of that for the U.S. lumber 

industry. This represented about 23.6 percent of the total 

cost of materials used by the tristate's entire lumber and 

wood products sector, but only about 0.29 percent of the 

area's total material inputs for "All Manufacturing." However, it should be of interest to suppliers and developers to 

note that in Pennsylvania, for example, annual materials 

costs alone (locally purchased timber and supplies) in the 

sawmill industry averaged $317,067 per establishment and 

$36,030 per person employed. From an economic development perspective, this compared quite favorably with a 

materials cost expenditure of $37,647 per employee by 

Pennsylvania's total lumber and wood products sector and 

with the average expenditure of $47,896 per employee by 

the State's "All Manufacturing" sector. 

Among the states, Pennsylvania's sawmill industry was the 

leading user of materials, totaling $1 18.9 million in 1982. 

This was 3 percent more than the total of the combined 

industries of Kentucky and West Virginia, and represented 
Table 10.-Material costs in tristate lumber and lumber and wood 

products sectors, by area, and U.S. lumber sector, 1982 

Area and 

Material costs by: 

Total Plant Employee 

sector 

Pennsylvania 

Lumber 

Lumberlwood products 

West Virginia 

Lumber 

Lumberlwood products 

Kentucky 

Lumber 

Lumberlwood products 

United States 

Lumber 6,674,200,000 1,056,700 50,600 

Source: U.S. Department of Commerce, Bureau of the Census 1984a,b,c,d, 

18.6 percent of the toal materials purchased by 

Pennsylvania's solid wood industry. Expenditures for materials averaged $317,067 per mill, which was slightly greater 

than that for West Virginia (0.9 percent) and moderately 

higher than that for Kentucky (6.2 percent). Since the sawmills in both Kentucky and West Virginia had a larger 

average volume of lumber output, Pennsylvania's higher 

material input costs are thought to reflect a higher degree 

of competition for available raw materials, and perhaps a 

larger proportion of high-quality timber-either in terms of 

species or grade, or both. 

The total material cost for Kentucky sawmills was $58.2 

million and represented about 25.5 percent of the $228.2 

million used by the State's entire lumber and wood products industry. West Virginia's material costs were the lowest among the three states, but it had the lowest volume of 

output. However, its materials cost of $56.9 million represented about 46.4 percent of the total used by the State's 

lumber and wood products sector, making it by far the 

dominant purchasing segment of West Virginia's solid 

wood sector. West Virginia's expenditures per employee for 

materials also were the least among the three states- 

$27,095 per employee versus $29,100 for Kentucky and 

$36,030 for Pennsylvania. Relative to Kentucky, this was 

due primarily to a lower volume processed per employee, 

and to Pennsylvania, due to a combination of smaller volume processed and lower price per unit. 

Summary of Factor Inputs 

The total cost of producing grade lumber in Kentucky, 

Pennsylvania, and West Virginia in 1982 was about 

$350,100,000 (Table 11). Materials and labor were the 

major inputs into the production process-accounting for 

94.6 percent (66.8 and 27.8 percent) of the total cost of 

production. The balance of the costs included expenditures 

for new and used capital plant and equipment (4.1 percent) 

and purchased services (1.3 percent). 

Materials-including contract timber logging, energy, 

resales, and supplies-was the predominant cost in producing lumber. Material costs ranged from 67.7 percent of 

total production cost in Pennsylvania-which was significantly influenced by higher prices paid per unit of higher 

value raw material-to 65.2 percent in West Virginia, which 

was affected by the lowest prices paid for high value raw 

material. The lumber industries in all three states had a 

lower proportion of total costs in materials than the U.S. 

lumber industry, though this was not a situation favorable 

to relative efficiency in the tristate hardwood industry. 

Rather, it was a result of: (1) the lower physical output per 

unit of labor (and higher unit cost of labor) in the hardwood 

industries compared with the predominantly softwood U.S. 

lumber industry; and (2) the proportionately larger volumes 

of materials purchased and processed by the U.S. industry 

due to its higher physical productivity. 
As suggested, labor-as a proportion of total costs-was 

higher in the tristate lumber industry than in the United 

States by about 10 percent. West Virginia's industrywhich had the lowest material cost-averaged the highest 

cost of labor input at 30.0 percent of total production cost. 

This was due mostly to the lower physical output per manhour and significantly higher supplemental labor costs in 

West Virginia's lumber industry. Of the three states, 

Pennsylvania's labor input accounted for the smallest" 

proportion of the total cost of lumber production. 

Capital expenditures, the third major cost item in the production process, ranged from 4.3 percent of total cost in 

Pennsylvania to 3.4 percent in West Virginia. In all three 

hardwood lumber-producing states, however, capital expenditures were a less significant item of total cost than was 

evidenced in the U.S. lumber industry (23.2 to 39.3 percent 

lower). This may further reflect undercapitalization in the 

tristate hardwood lumber industry. 

Summary and Conclusions 

I In an economy where increasing efficiency is stressed, 

improvements in productivity and performance among all 

economic factors of production-such as land, labor, capital, management, and entrepreneurship-are necessary for 

an industry to remain competitive in the marketplace. In the 

following tabulations and tables are measures that are' 

useful in the management of operations to evaluate performance. Used collectively and in conjunction with the earlier 

displays and discussions, they provide insight into the 

operational status and productive differences among the 

tristate hardwood lumber industry. Combined with forthcoming performance trends analyses and current, sitespecific data, these measures provide the foundation for 

improved efficiency, development, and policy initiatives by 

the firm, industry, and concerned institutions. 

Measures of Productivity and Performance 

Productivity measures are standardized concepts that carry 

a common understanding. They measure the relationship 

between quantity of resources used and quantity (or value 

in constant terms) of outplits. They are not precise measures of individual factor efficiency, but are highly accepted 

and applied indicators of the efficiency with which a 

resource is used. For example, the ratio of output per 

employee hour (labor or capital productivity) does not measure a specific contribution, such as labor or capital. 

Rather, it reflects the joint effect of these factors and others 

such as changes in technology, capacity utilization, plant 

design and tayout, skill and effort of the work force, managerial ability, and labor-management relations. 

The following tabulation provides 1982 measures of 

productivity for the tristate and US. lumber industries (SIC 

2421). In the tabulation, ratios involving hours represent all 

employee plant hours worked; also, capital productivity 

equals value added minus payro(l (VAMP) divided by all 

employee plant hours worked (Schallau et al. 1985). 

Labor Unit Labor Capital Value added Value added 

productivity costlpayrolt productivity as percent of per hour 

Area bflhour Dollarslbf Dollarslhr shipments Dollars 

Kentucky ' 77.14 .0730 ~ 4.21 36.5 10.15 

West Virginia 66.5 .0821 4.98 41.5 10.44 

Pennsylvania 66.2 .0913 4.30 33.7 10.35 

U.S. 11 7.8 .0673 4.78 32.2 12.71 
Table 11 .-Input cost distribution of major operational factors in 

tristate and US. lumber industries by area (SIC 2421), 

1 982a 

Area 

Total Material Labor Capital Purchased 

costs costs costs expenditures services 

Million dollars - - - - - - - - - -Percent- - - - - - - - - - 

Pennsylvania 175.5 67.7 26.7 4.3 1.3 

Kentucky 87.4 66.6 27.9 4.2 1.3 

West Virginia 87.2 65.2 30.0 3.4 1.3 

United States 9,829.0 67.9 25.3 5.6 1.2 

a Costs are necessarily conservative due to lack of cost information on 

undepreciated assets; labor includes estimated supplemental costs; purchased 

services are based on U.S. lumber industry (SIC 2421) average (data may not 

total due to rounding). 

Source: U.S. Department of Commerce, Bureau of the Census 1985a,b. 

Table 12.-Supplemental measures of performance in tristate and 

U.S. lumber industries, by area (SIC 2421), 1982 

Ratio 

West Penn- United 

Virginia Kentucky sylvania States 

Cost: inputloutput (percent) 

Materialslvalue of shipments 59.6 61.8 61.6 66.3 

Materials and payrolllshipment 86.0 87.7 85.8 91 .O 

value 

Payrolllvalue added 52.3 57.3 58.4 62.4 

Total labor costlvalue addeda 66.2 70.8 72.0 76.9 

New capital plantlvalue added 5.8 8.1 8.8 12.8 

Payrolllman-hour worked 5.46 5.65 6.05 7.83 

(dollars) 

Total labor cost1 6.92 6.99 7.46 9.77 

man-hour workeda (dollars) 

a Includes estimated supplemental labor costs. 

Labor Productivity 

The physical output per man-hour (labor productivity) in 

Kentucky's lumber industry was the highest among the 

three states, at least 10.6.percent higher than in West 

Virginia or Pennsylvania in 1982. Stated another way, 

Kentucky's sawmills required only 12.55 man-hours of labor 

to produce a thousand board feet of lumber. In West Virginia and Pennsylvania, it took 15.05 and 15.10 hours of 

labor, respectively, to manufacture the same volume of 

products. Also, high physical productivity combined with 

moderately low wages (Table 12) resulted in Kentucky's 

sawmills attaining the lowest payroll labor cost (7.3 cents) 

per board foot of lumber produced. West Virginia's sawmill 

industry had the second lowest unit labor cost (8.2 

centslboard foot) and Pennsylvania's had the highest (9.1 

centslboard foot). Still, the industries of all three states 

experienced lower physical productivity and higher unit 

labor costs than the Nation's predominately softwood lumber industry. Given the relative nature of the inputs, outputs, and breakdown processes between the hardwood and 

softwood industries, this general relationship is to be 

expected. 
Economic Performance 

Upon changing from a physical to.an economic perspective, which introduces output quality, a substantially 

different insight into the hardwood sawmill industry's performance is gained by considering the total costs of inputs 

relative to thevalues received for products sold, especially 

the value added. Value added (value of shipments minus 

all material costs) in the manufacture of goods is a major 

indicator of overall economic performance for both the firm 

and industry. 

In overall economic performance, the lumber industries in 

all three states achieved relatively high productivity rates 

compared to the U.S. lumber industry. However, West 

Virginia's lumber industry was substantially more productive than that of Kentucky or Pennsylvania. In West 

Virginia, the monetary value added by the lumber manufacturing process represented 41.5 percent of the total value 

of products sold in 1982. This was substantially higher 

(1 3.7 percent) than the value added earned (36.5 percent) 

by the lumber industry in Kentucky, and 23.1 percent 

higher than that received (33.7 percent) by Pennsylvania's 

sawmill industry. The West Virginia industry's higher productivity was primarily due to its lower ratio (59.6 percent) 

of nonwage costs to value of shipments; that is, compared 

to the prices received for final products, the industry paid 

relatively lower prices for its raw materials, energy, supplies, 

and other material inputs than the Kentucky, Pennsylvania, 

or U.S. sawmill industries (Table 13). 

West Virginia's lumber industry also achieved (1) the lowest 

labor cost relative to value added; and (2) the highest rate 

of dollar value added per man-hour worked by all employees, or $10.44 per hour. Sawmills in Pennsylvania ranked 

second with $10.35 value added per hour worked, and 

Kentucky's industry ranked third at $10.15 per hour. 

Although West Virginia's industry remained the most productive among the three states in value added per manhour worked, its position was compromised somewhat 

because the full effect of the industry's lower relative material costs was not realized due to: (1) its lower physical 

output per man-hour compared to Kentucky's sawmills; and 

(2) the industry's lower output prices received compared to 

Pennsylvania's industry. The industries in all three states 

produced at least 17.9 percent less value added per manhour than the U.S. lumber industry. This was primarily due 

to the latter's substantially higher labor productivity, which 

partially reflects the softwood lumber sector's higher capital 

intensity and technological innovations. 

Capital Productivity 

The performance of capital expenditures on investments in 

machinery, equipment, and plant structures was greater in 

the lumber industry of West Virginia than that of Kentucky, 

Pennsylvania, or the United States. Capital productivity, 

measured in terms of dollar returns per man-hours worked, 

was $4.98 per hour in West Virginia-or at least 15.8 percent greater than the $4.30 return in Pennsylvania and the 

$4.21 return in Kentucky. Also, West Virginia's capital 

investments were more productive than those of the 

Nation's lumber industry. 

Since sawmills in West Virginia reportedly invested less per 

employee in 1982 than the other industries compared, a 

situation that has been prevalent since at least 1972 (Jones 

and Zinn 1986), the higher productivity experienced by the 

industry represents a phenomenon that defies simple 

explanation given the data at hand. However, several possible explanations come to mind, the most plausible of 

which are: (1) It is possible that the West Virginia lumber 

industry's emphasis on production as contrasted with transTable 13.-Inputs as a proportion of value of shipments by tristate and U.S. lumber industries, by area 

(SIC 2421), 1982a 

Total value Material Labor Capital Purchased Total 

Area of shipments costs costsb expendituresC services inputs 

Million dollars - - - - - - - - - - - - - - - - - - - -Percent- - - - - - - - - - - - - - - - - - - - 

Pennsylvania 193.1 61.6 24.2 3.9 1.2 90.9 

Kentucky 94.2 61.8 25.9 3.9 1.2 92.8 

West Virginia 95.5 59.6 27.4 3.1 1.2 91.3 

Total 382.8 61.1 25.4 3.7 1.2 91.5 

United States 10,065.2 66.3 24.7 5.4 1.2 97.7 

a See qualifications in Table 11 (data may not add due to rounaing). 

Includes supplemental labor costs. 

a lncludes used capital expenditures. 
actional activities (as evidenced by the almost 10 to 1 ratio 

of production workers to nonproduction workers) is espeI cially conducive to enhancing the overall productivity of the 

firm and industry; (2) Since the West Virginia lumber industry produces a more homogeneous product output than 

I either Pennsylvania or Kentucky, the invested capital may , be more concentrated and, thus, more productive due to 

I specialization; (3) Unreported investments in used capital 

could be of such a magnitude as to maintain or increase 

productivity and offset expenditures that otherwise would 

have been required for new capital plant. 

Contributing to this situation are the following: (1) It is 

possible that the sawmill industry's undepreciated capital 

assets are disproportionately greater in West Virginia than 

in Kentucky or Pennsylvania; that is, the industry has I newer productive assets in operation. Since data on these 

I assets are not available, the question cannot be resolved; 

(2) It is possible that the larger size sawmills in the State 

i account for the predominance of the new capital expenditures and perhaps operating at peak efficiency, and/or the 

combined output and efficiency of these mills is of such 

proportion as to distort the productivity ratio. Conclusive 

answers cannot be developed without further study. 

Performance Relative to Social Objectives 

On the basis of the measures cited, in 1982 the West 

Virginia lumber industry was the most productive in terms 

of economic efficiency; that is, the industry generated the 

highest total economic output relative to inputs among the 

three states studied. But West Virginia's lumber industry 

was not as efficient as the U.S. lumber industry in 1982. 

The US. lumber industry was more productive, I believe, 

due to its higher multifactor productivity of ,labor and capital 

combined in the production process with its homogeneity of 

product output. 

Assuming this hypothesis concerning the U.S. lumber 

industry is correct, it appears that, as a whole, the tristate 

lumber industry is undercapitalized to the point of being 

unable to optimize output efficiency. This is not to deny 

that there are many highly efficient medium- to large-size 

mills operating within all three states. Other factors detrimental to the overall performance of tristate operations 

were: 

1. The industries operated well below their reported normal 

(and probably preferred) capacities. 

2. The Kentucky and West Virginia lumber industries operated substantially less than a full work-year, which 

resulted in the underemployment of labor and capital. 

3. Both wages and total earnings in the sawmill industries 

of all three states were lower in all occupations than 

those in each respective state's other lumber and wood 

products industries and "All Manufacturing" averages, 1 thus lessening their competitiveness for the most productive labor. 

4. Material costs (predominantly raw materials) in Pennsyl- I 

I 

vania were substantially higher, even when considering 

a probable higher quality of raw materials in terms of 

species and grade, than in West Virginia or Kentucky. 1 

Thus, the question is raised of the adequacy of the 

performance of the markets for raw materials (values 

received) in the latter two states. 

The demand for hardwood lumber products has increased 

since 1982 and is expected to continue to increase substantially in the years ahead (Phelps 1984). Since the 

tristate area is blessed with extensive and valuable forest 

resources-the economic potential of which are not being 

fully realized-and large, high capacity sawmill industries, 

the prospect for socially desirable economic development is 

a highly viable option. This is especially true in West Virginia, where a secondary wood-using industry remains 

seriously underdeveloped, but where efforts are underway 

to correct the situation (Dempsey and Price 1984; Zinn and 

Jones 1986). 

The prominence of the tristate lumber industry as an optimum performing and economically competitive supplier in 

the years ahead will depend on: (1) the policies and strategies developed to use the resource in a socially desirable 

manner; (2) improving the creativity and productivity of 

management, especially in fostering technological innovations, more effective marketing and other transactional 

activities (Dempsey 1973); (3) ". . .improving the utilization 

of all inputs into the production and use of hardwood lumber. . ." as Luppold (1982) reported in an econometric 

study of the hardwood lumber market; and (4) the character 

and resolve of the entrepreneural actions taken by the firm, 

industry, and supporting institutions. 

Literature Cited 

Brown, Nelson C.; Bethel, James S. 1958. Lumber. 2d ed. 

New York: John Wiley & Sons. 379 p. 

Cardellichio, Peter A.; Binkley, Clark S. 1984. Hardwood 

lumber demand in the United States: 1950 to 1980. 

Forest Products Journal. 34(2): 15-22. I 

Dempsey, Gilbert P. 1973. Toward growth in productivity. Forest Products Journal. 23(4): 12-14. 

Demsey, Gilbert P.; Price, Karen S., eds. 1984. Proceedings of the governor's conference on West Virginia's 

forest industry. 1983 November 7-8; Charleston, WV. 

Charleston, WV: Governor's Office of Economic and 

Community Development and West Virginia Forests, Inc. 

208 p. 
Ellefson, Paul V.; Stone, Robert N. 1984. U.S. wood 

based industry: industrial organization and performance. New York: Praeger. 479 p. 

Jones, Kenneth D.; Zinn, Gary W. 1986. Forests and the 

West Virginia economy: the size and economic performance of West Virginia's wood products industry. 

Vol. 4 West Virginia For. Dev. Ser. Bull. 691. 

Morgantown, WV: West Virginia University, Agricultural 

and Forestry Experiment Station. 54 p. 

Lohr, C. J. 1985. The primary wood industries of Kentucky-1985: a directory. Frankfort, KY: Kentucky 

Natural Resources and Environmental Protection Cabinet, Division of Forestry. 94 p. 

Luppold, William G. 1982. An econometric model of the 

hardwood lumber market. Res. Pap. NE-512. Broomall, 

PA: U.S. Department of Agriculture, Forest Service, 

Northeastern Forest Experiment Station. 15 p. 

Phelps, Robert B. 1984. Current and future demands for 

hardwoods. Forest Products Journal. 34(10): 8-1 1. 

Schallau, Con H.; Maki, Wilbur R.; Foster, Bennett B.; 

Redmond, Clair H. 1985. North Carolina's forest products industry: performance and contribution to the 

state's economy, 1970 to 1980. Res. Pap. PNW-343. 

Portland, OR: U.S. Department of Agriculture, Forest 

Service, Pacific Northwest Experiment Station. 22 p. 

Simmons, Fred C. 1960. Sawmills of northern New York. 

The Northeastern Logger. 8(11): 22-23, 56-59. 

Thorpe, R. R. 1984. Pennsylvania sawmill directory1984. Harrisburg, PA: Pennsylvania Department of 

Environmental Resources, Bureau of Forestry, Office of 

Resources Management. 76 p. 

U.S. Department of Commerce, Bureau of the Census. 

1984a. 1982 Census of manufactures, geographic 

series, Kentucky. Ser. No. MC82-A-18. Washington, 

DC: U.S. Department of Commerce, Bureau of the Census. 54 p. 

U.S. Department of Commerce, Bureau of the Census. 

198413. 1982 Census of manufactures, geographic 

series, Pennsylvania. Ser. No. MC82-A-39. Washington, DC: US. Department of Commerce, Bureau of the 

Census. 1 14 p. 

U.S. Department of Commerce, Bureau of the Census. 

I 1984c. 1982 Census of manufactures, geographic 

series, West Virginia. Ser. No. MC82-A-49. Washington, DC: U.S. Department of Commerce, Bureau of the 

Census. 31 p. 

US. Department of Commerce, Bureau of the Census. 

1984d. Current industrial reports, lumber production 

and mill stocks, 1983. Ser. No. MA24T(83)-1. Washington, DC: U.S. Department of Commerce, Bureau of the 

Census. 9 p. 

US. Department of Commerce, Bureau of the Census. 

1985a. 1982 Census of manufactures, industry series, 

logging camps, sawmills, and planing mills. Ser. No. 

MC82-1-24A. Washington, DC: U.S. Department of 

Commerce, Bureau of the Census. 29 p. 

U.S. Department of Commerce, Bureau of the Census. 

1985b. Current industrial reports, lumber production 

and mill stocks, 1984. Ser.. No. MA24T(84)-1. Washington, DC: U.S. Department of Commerce, Bureau of the 

Census. 9 p. 

U.S. Department of Commerce, Bureau of the Census. 

1986. Census of manufactures, general summarypart 1. Ser. No. MC82-SUM-1. Washington, DC: U.S. 

Department of Commerce, Bureau of the Census. 169 p. 

U.S. Department of Labor, Bureau of Labor Statistics. 

1983. Supplement to producer prices and price indices, 1982. Washington, DC: U.S. Department of Labor, 

Bureau of Labor Statistics; September 1983. 186 p. 

U.S. Department pf Labor, Bureau of Labor Statistics. 

1985. Supplement to producer prices and price indices, 1984. Washington, DC: U.S. Department of Labor, 

Bureau of Labor Statistics; October 1985. 189 p. 

Warder, B. J. 1984. The forest industry of West Virginia-1984. Charleston, WV: West Virginia Department 

of Natural Resources, Division of Forestry. 134 p. 

White, David E. 1980. Manpower training in eastern 

forest industry: a review and assessment. Res. Pap. 

NE-453. Broomall, PA: U.S. Department of Agriculture, 

Forest Service, Northeastern Forest Experiment Station. 

20 p. 

Wolf, Charles H. 1973. Employee turnover: costs, 

causes, and methods of control. Northern Logger. 

22(1): 26-27, 40-43. 

Wolf, Charles H. 1977. Job-quitting at Appalachian sawmills. Res. Pap. NE-369. Broomall, PA: US. Department of Agriculture, Forest Service, Northeastern Forest 

Experiment Station. 10 p. 

Wolf, Charles H.; Dempsey, Gilbert P. 1978. Logging work 

injuries in Appalachia. Res. Pap. NE-416. Broomall, 

PA: U.S. Department of Agriculture, Forest Service, 

Northeastern Forest Experiment Station. 13 p. 

Zinn, Gary W.; Jones, Kenneth D. 1986. Forests and the 

West Vir economy: growth potential and development prospects for West Virginia's timber-based 

industries. Vol. 5. West Virginia For. Dev. Ser. Bull. 691. 

Morgantown, WV: West Virginia University, Agricultural 

and Forestry Experiment Station. 46 p. 
Dempsey, Gilbert P. 1987. Variations in productivity and performance in 

grade lumber industries in Kentucky, Pennsylvania, and West Virginia-1982. NE-RP-604. Broomall, PA: U.S. Department of Agriculture, Forest Service, Northeastern Forest Experiment Station. 18 p. 

Sawmill effectiveness is crucial to the growth and development of wood 

industries among locales, states, regions, and countries. Productivity ratios, 

structural factors, and other indicators of economic performance were used 

to measure the relative productive efficiency of the grade hardwood lumber 

industries in Kentucky, Pennsylvania, and West Virginia. Despite 

undercapitalization, the industries' latent capacity and efficiency potential 

provide the base and make the prospect for socially desirable economic 

development a highly viable option in all three states. 

ODC 791.2: 832.1 5 

Keywords: Economics (forest products industries); sawmills; hardwoods; 

productivity; performance; development 

* U. S.GOUERNNENT PRINTING OFFICE:1987-748-076:40032 
Headquarters of the Northeastern Forest Experiment Station are in Broomall, Pa. 

Field laboratories are maintained at: 

o Amherst, Massachusetts, in cooperation with the University of Massachusetts. 

e Berea, Kentucky, in cooperation with Berea College. 

e Burlington, Vermont, in cooperation with the University of Vermont. 

e Delaware, Ohio. 

e Durham, New Hampshire, in cooperation with the University of New Hampshire. 

@ Hamden, Connecticut, in cooperation with Yale University. 

Morgantown, West Virginia, in cooperation with West Virginia University, 

Morgantown. 

o Orono, Maine, in cooperation with the University of Maine, Orono. 

e Parsons, West Virginia. 

e Princeton, West Virginia. 

e Syracuse, New York, in cooperation with the State University of New York 

College of Environmental Sciences and Forestry at Syracuse University, 

Syracuse. 

e University Park, Pennsylvania, in cooperation with the Pennsylvania State 

University. 

@ Warren, Pennsylvania. 

Persons of any race, color, national origin, sex, age, religion, or with any handicapping condition are welcome to use and enjoy all facilities, programs, and services 

of the USDA. Discrimination in any form is strictly against agency policy, and 

should be reported to the Secretary of Agriculture, Washington, DC 20250.