Labor Adjustment Patterns In The U.S. Steel Industry
Authors: Nwaokoro Amaechi Nkemakolem 
Published: February 2016

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; tab-stops: -.5in; mso-hyphenate: none;"><span style="font-family: &quot;Times New Roman&quot;,&quot;serif&quot;; letter-spacing: -0.1pt; font-size: 10pt; mso-bidi-font-style: italic;">This study examines labor demand in the U.S. steel industry.&nbsp;&nbsp;During the period of 1963-1988, the industry witnessed a tremendous decline in its output and employment.&nbsp;&nbsp;This decline has been particularly severe in the 1980s.&nbsp;&nbsp;The overall goal of this study is to estimate models of labor demand for the industry.</span></p><p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; tab-stops: -.5in; mso-hyphenate: none;"><span style="font-family: &quot;Times New Roman&quot;,&quot;serif&quot;; letter-spacing: -0.1pt; font-size: 10pt; mso-bidi-font-style: italic;">&nbsp;</span></p><p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; tab-stops: -.5in; mso-hyphenate: none;"><span style="font-family: &quot;Times New Roman&quot;,&quot;serif&quot;; letter-spacing: -0.1pt; font-size: 10pt; mso-bidi-font-style: italic;">The study makes two main contributions.&nbsp;&nbsp;First, the study constructs a new high-frequency monthly data set on steel output and factor prices.&nbsp;&nbsp;Hamermesh (1993) notes that most studies of labor demand rely on annual data or quarterly data which is too intertemporally aggregated to model short-run labor adjustment.&nbsp;&nbsp;Second, labor demand in the industry is modeled as a function of the unfilled orders variable.&nbsp;&nbsp;This variable is included as a measure of future demand for the industry's output.&nbsp;&nbsp;The main challenge of this study is to deal with a number of econometric modeling issues.&nbsp;&nbsp;Recognizing that the industry's output demand is potentially an endogenous variable, the output is instrumented with a set of demand related variables including controls for various steel protection regimes.&nbsp;&nbsp;This study also corrects for serial correlation in these data through differencing and </span><span style="font-family: &quot;Times New Roman&quot;,&quot;serif&quot;; letter-spacing: -0.15pt; font-size: 10pt; mso-bidi-font-style: italic;">Hatanaka</span><span style="font-family: &quot;Times New Roman&quot;,&quot;serif&quot;; letter-spacing: -0.1pt; font-size: 10pt; mso-bidi-font-style: italic;">&rsquo;s autocorrelation procedures.<span style="mso-spacerun: yes;">&nbsp; </span></span></p><p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; tab-stops: -.5in; mso-hyphenate: none;"><span style="font-family: &quot;Times New Roman&quot;,&quot;serif&quot;; letter-spacing: -0.1pt; font-size: 10pt; mso-bidi-font-style: italic;"></span></p><span style="font-family: &quot;Times New Roman&quot;,&quot;serif&quot;; letter-spacing: -0.1pt; font-size: 10pt; mso-bidi-font-style: italic;"><span style="mso-spacerun: yes;"><p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; tab-stops: -.5in; mso-hyphenate: none;"><span style="font-family: &quot;Times New Roman&quot;,&quot;serif&quot;; letter-spacing: -0.1pt; font-size: 10pt; mso-bidi-font-style: italic;">The main results of the study are fourfold.&nbsp;&nbsp;First, as in previous studies, the Instrumental Variable (IV) estimates show that the real wage rate and output are the key variables for explaining the fluctuations in employment.<span style="mso-spacerun: yes;">&nbsp; </span>Second, the IV results do suggest that endogeneity of output is a problem and that the OLS results are biased downward.<span style="mso-spacerun: yes;">&nbsp; </span>Third, the unfilled orders variable increases the demand for labor.&nbsp;&nbsp;However, this result is somewhat sensitive across specifications.&nbsp;&nbsp;&nbsp;Lastly, the study finds a fast short run employment adjustment period of 1.6 months.<span style="mso-spacerun: yes;">&nbsp; </span>A final note of caution concerns serial correlation.<span style="mso-spacerun: yes;">&nbsp; </span>Serial correlation is relatively severe in the data.&nbsp;&nbsp;The study solves this problem through both differencing and autocorrelation corrections.&nbsp;&nbsp;However, the success of these procedures proved to be mixed.&nbsp;&nbsp;Thus, the estimates reported herein vary across different estimation approaches.</span><span style="font-family: &quot;Times New Roman&quot;,&quot;serif&quot;; letter-spacing: -0.15pt; font-size: 10pt; mso-bidi-font-style: italic;"></span></p></span></span>