The introduction of new production processes can have dramatic effects on aggregate productivity within an industry. ... Indeed, industry productivity rises not only because the average plant becomes more productive, but due to a shift of resources from less productive plants to more productive plants.
The increased availability of detailed data on what goes on inside firms has made it possible for researchers analyzing the drivers of productivity to distinguish between effects within producers and across producers. The empirical results of these studies point to an important distinction between productivity effects at the level of the individual producer and those realized by moving resources between producers – the reallocation mechanism.
Industry productivity rises not only because the average plant becomes more productive, but due to a shift of resources from less productive plants to more productive plants.
The latter effects are governed by market forces such as competition, whereby market shares are allocated across producers active in a given market. Indeed, industry productivity rises not only because the average plant becomes more productive, but due to a shift of resources from less productive plants to more productive plants.
In recent research, we examine one particular industry – the US steel sector – for which we have detailed producer-level data on prices and production. Our setting is well suited for measuring the role of technological change, since we directly observe the arrival of a new production process – the minimill – at the plant level.
As such, this constitutes a case study of the impact of a major technological innovation that changed the face of an industry. The steel industry not only had a major impact on the geography of economic activity, but it also significantly increased the efficiency of production. As a consequence, prices and overall profits in the industry were considerably lower.
Productivity growth in the US steel industry
Both the inputs used in steelmaking and the products were remarkably stable over a 40-year period. Productivity growth in steel is almost uniquely driven by process innovation rather than through the introduction of new goods. Observing a panel of steel producers over a 40-year period – 1963-2002 – allows us to study the long-run implications of increased competition, such as the slow process of firm entry and exit.
Productivity growth in steel is almost uniquely driven by process innovation
The US steel industry shed about 75% of its workforce between 1962 and 2005: about 400,000 employees. This dramatic fall in employment had far-reaching economic and social implications. For example, between 1950 and 2000, Pittsburgh – which used to be the center of the US steel industry – fell from being.
While employment in the steel sector fell by a factor of five, shipments of steel products in 2005 reached the level of the early 1960s. Thus, output per worker grew by a factor of five, while total factor productivity increased by 38%. This makes the steel sector one of the fastest growing manufacturing industries over the last three decades, behind only the computer software and equipment industries.
The US steel industry really stands out: over the period 1972-2002, it witnessed impressive productivity growth – 28% compared with the median of 3% – and this while the sector contracted by 35%. The starkest difference was the drop in employment of 80% compared with a decline of 5% for the average sector. This left the industry with only 100,000 workers in 2002 compared with about 500,000 in 1972.
You May Also like:
👉Apple I Phone 14 Pro Event Recap
👉Best Gaming Laptops under your budget
👉The Superfast Network Airtel 5G Plus Rolls Out
