Reasons Behind Low Profits of Established Steelmakers in the US: Strong Unions, High Wage Rates and Inflexible Work Rules
commodity type input, could easily switch demand from company to company, and they used this leverage to further bargain down prices. To make matters worse, established steel makers were typically unionized, and a combination of high wage rates and inflexible work rules raised labor costs, making it even more difficult to make a profit in this brutally competitive industry. Strong unions, together with the costs of closing a plant, were also an impediment to reducing excess capacity in the industry.
For decades, the United States steel industry was in deep economic malaise. The problems of the industry were numerous. Beginning in the 1970s, falling trade barriers allowed cost-efficient foreign producers to sell steel in the United States, and they were taking market share away from once dominant integrated steel makers, such as U.S.
Steel, Bethlehem Steel, and Wheeling-Pittsburg.
To make share worse for incumbents, there was also new domestic competition in the form of mini-mills. Mini-mills were small steel makers who used electric arc furnaces to smelt .1nd produce scrap steel , often at a significantly lower cost than large established companies. Because they did not use iron ore, mini-mills did not need to invest in blast furnaces to smelt iron ore (blast furnaces are very capital intensive). The average mini-mill was approximately one tenth of the size of a large integrated mill, used nonunion labor, and was typically located in rural communities where labor costs were relatively low. Scrap steel was in plentiful supply and priced low. Initially, most mini-mills produced low-grade construction steel, although they have moved into higher-grade steel in recent years.
If the expansion in supply from foreign companies and mini-mills wasn't enough, demand for steel was also contracting as customers switched to substitutes, including aluminum, plastics, and composites. The combination of growing supply and shrinking
For decades, the United States steel industry was in deep economic malaise. The problems of the industry were numerous. Beginning in the 1970s, falling trade barriers allowed cost-efficient foreign producers to sell steel in the United States, and they were taking market share away from once dominant integrated steel makers, such as U.S.
Steel, Bethlehem Steel, and Wheeling-Pittsburg.
To make share worse for incumbents, there was also new domestic competition in the form of mini-mills. Mini-mills were small steel makers who used electric arc furnaces to smelt .1nd produce scrap steel , often at a significantly lower cost than large established companies. Because they did not use iron ore, mini-mills did not need to invest in blast furnaces to smelt iron ore (blast furnaces are very capital intensive). The average mini-mill was approximately one tenth of the size of a large integrated mill, used nonunion labor, and was typically located in rural communities where labor costs were relatively low. Scrap steel was in plentiful supply and priced low. Initially, most mini-mills produced low-grade construction steel, although they have moved into higher-grade steel in recent years.
If the expansion in supply from foreign companies and mini-mills wasn't enough, demand for steel was also contracting as customers switched to substitutes, including aluminum, plastics, and composites. The combination of growing supply and shrinking