Productivity, Labor Demand and Cost in a Continuous Production Facility

Abstract

IN Hicksian theory, the short-run demand for labor and marginal cost of a single output firm are derived from the marginal physical product curve. Marginal productivity analysis will be proved inapplicable to a steel mill department and the marginal cost and demand for labor will be derived from a local union contract, the standard crew agreement. The term 'firm' in traditional theory was clearly not meant to apply to a multi-process, multi-product steel plant. Its basic production facilities include fifty iron and steel furnaces and 500 coke ovens which must be operated continuously during the planning period. Semi-continuous, partially adaptable, processes include fifteen rolling mills and processing lines for transforming steel ingots into hundreds of different types of structural beams, plate, cold rolled and galvanized sheets and tin plate. The steel plants' raw material inputs include six million tons of iron ore, three million tons of scrap and two-thirds as much water as the city of Chicago. Overhead capital may include iOO miles of railroad tracks and 900 cars. This description should be sufficient to establish that output is the joint product of many separate production units or departments. The total and marginal products do not exist because, as Eiteman' showed, a marginal change in the output of the firm is the sum of coordinated and often non-proportional changes in the output of the departments which are the fundamental cost and production units, like the theoretical 'firm'. Departments are given current output goals every ten days which they must meet in order to synchronize their output with other departments. Overall plans are established for three months. Some firms issue labor constraints on the number of workers permitted at each level of output but state that these are seldom binding. The department is supposed to minimize cost. If it succeeds in reducing it below its historical level, management and even the workers may receive a bonus for doing so. The minimization of cost and tcchnical