Growth of labour productivity is also used as a proxy of technological progress.

Table 4.9 Productivity of man-hour and hourly wage rates in steel-making, selected countries and years, 1975-90 (kilograms and US$ per tonne shipped)

US Japan Germany UK Australia Brazil Taiwan Korea

At 0.90 standard operating rates (actual operating rates in parentheses)

1975 M (0.75) 95 (0.80) 103 (0.60) 48 (0.70) 31 (1 20) 97 8 96 (0.87) 132 (0.64) 119 (0,60) 50 0.73 t l ^ ) 9 0 ^ 102 (0.78) 140 (0.66) 123 (0.64) 60 0.40 ( - ) 73 (1 o1 982 111 (0.55) 137 (0.57) 137 (0.55 135 0.55 ^ 3 0 1984 132 (0.72) 146 (0.59) 145 (0.72) 154 U ) 104 101 ^89 179 175 175 147 89 143 141

At actual operating rates (hourly wage rates in USS in parentheses)

1975 80 (10.8) 88 (5.4) 77 (6.5) 37 (4.6) 54 _{(0 9)} 1978 95 (14.7) 105 (9.5) 89 (9.8) 42 6,0 ( f s 1980 97 (19,1) 114 (10,5) 97 (12,7) 17 (9.7) 97 ₉ 1982 94 (24.7) 100 (10.1) 94 (10.8) 85 (10.0) ( - ) 122 2 6 1984 124 (22.4) 110 (11.3) 125 (11.0) 112 (9.3) 13^ 30 1987 149 (24.1) 130 (18.7) 136 (19.0) 143 (14.3) I39 (4.5) 1988 ^ 159 (25.4) 147 (22.0) 154 (19.6) 154 (16.0) 125 (17.2) 69 (3.5) 111 (8.0) 118 (6.0) 1989^ 159 (26.0) 152 (21.0) 156 (20.0) 159 (16.0) 133 (18.0) 71 (4.0) 115 (9.0) 122 (8.0)

Notes The figures are averages over major steel-makers in each country. POSCO only in Korea. a Estimates of productivity assuming operating rates are 90 per cent in all firms. This is not the

average operating rate but rather a figure tiiat represents a fairly optimum rate

b 1979 data for Korea.

c For cold rolled sheet shipped as of November for die specified years. These figures are not directiy comparable with those of otiier years.

Sources WSD, Cost Monitor #12, Nov. 1989; and #13, Jan. 1991;

WSD, Steel Strategist #15, Jan. 1989;

WSD, POSCO: Korea's Emerging Steel Giant, Core Report V, 1985.

Labour productivity at SOR is the achievable output level per man-hour input under the assumption of the same operating rates (normally 90 per cent) across all firms or all countries. Table 4.9 shows that total steel output per labour time at SOR in Korea was much lower than in most developed countries, though gradually improving.^^ However, Korea's productivity of labour time in terms of AOR has been very competitive since the early 1980s." In the early and mid-1980s, before developed countries began to make serious efforts to make structural adjustments and to rationalise their steel industries so as to promote a substantial improvement in productivity despite a drop in output, Korea's labour productivity in terms of AOR was in fact greater than in most developed countries. This suggests how important operating rates in productivity are. Table 4.9 shows the differences between productivity measures at SOR and at AOR, 31. In production of cold-rolled sheets at the end of 1990, for example, Korea showed similar levels to

Taiwan and AusQ-alia but was 30-50 kilograms less productive per hour, compared to some steel- making developed countries such as the United States, Japan, West Germany and the United Kingdom (Table 4.9).

32. Table 4.9 shows that Korea's labour productivity in cold-rolled products was still lower than its average steel productivity level and also less than that in die major steel-making developed countries (see 1988 and 1989 figures). This implies that, in the Korean steel industiy, the more capital- intensive cold-roUed flat products are relatively less competitive than other products.

104 Table 4.10 Crude steel production per worker, selected countries, 1975-90

(tonnes; averages over major firms)

Australia US Canada Japan Germany France UK Brazil India Taiwan Korea World 1975 _{177.5 179.1 229.2 423.9 153.4 186.3 85.5 79.8 25.3 208.5 185.6} 1976 _{176.6 205.6 246.3 451.1 156.8 207.2 103.8 64.9 26.2 283.2 202.2} 1977 _{170.0 202.2 241.7 418.4 158.6 208.9 94.9 90.2 27.1 272.8 196.0} 1978 _{176.0 225.5 245.4 440.1 168.4 228.7 99.1 95.2 24.9 114.5 244.2 210.6} 1979 _{173.4 217.3 246,3 474.2 179.0 293.7 85.8 101.4 23.3 351.1 448.7 218.0} 1980 _{152.6 198.1 241.1 442.6 190.3 310.9 92.3 99.9 24.2 337.0 403.5 211.2} 1981 _{151.2 W.8 213.0 435.8 177.6 340.9 149.4 102.3 24.9 338.7 560.5 224.6} 1982 _{133.3 182.3 215.0 399.9 167.5 292.7 145.8 105.0 24.0 360.9 611.6 207.3} 1983 _{131.4 242.6 263.4 422.0 164.4 299.2 206.0 136.7 24.4 423.8 587.7 232.5} 1984 _{171.6 273.3 274.5 464.9 189,9 359.2 205.9 119.6 26.1 492.1 650.5 262.2} 1985 _{150.7 318.1 281.1 461.5 207.3 202.0 227.2 156.7 27.3 394.9 549.3 266.4} 1986 _{171.2 310.1 283.3 449.0 200.4 211.9 230.6 178.1 29.6 414.6 499.1 269.5} 1987 _{164.0 369.4 290.9 537.0 203.7 206.0 311.6 192.0 29.9 435.4 586.7 299.2} 1988 _{163.7 423.4 292.8 505.6 239.2 242.8 310.5 188.9 30.8 475.2 622.5 311.3} 1989 _{196.3 448.6 312.5 640.6 245.1 291.2 300.2 172.7 31.2 702.4 688.7 350.7} 1990 _{193.5 455.4 265.9 673.7} - - - 673.2 659.2 507.8

Notes and Sources As in Table 4.8.

suggesting that higher operating rates raise output per time, ceteris paribus. By utilising its plant beyond the designed capacity (that is, more than 100 per cent operating rates), POSCO was able to increase its production level per man-hour input and boost its production performance. By contrast, most international steel-makers in developed countries operated at rates much lower than 90 per cent - a rate generally considered to be fairly optimum - and hence their productivity remained below the level suggested by their SOR.

Table 4.9 shows also that the average hourly wage rates of Korean steel workers have been much lower than in developed countries. A lower man-hour input price does not necessarily lead to less unit labour costs, when lower wage rates reflect lower productivity of labour time. Nevertheless, with relatively low wage rates and fairly competitive labour productivity, the Korean steel industry has been able to achieve low levels of labour costs per unit steel output relative to competing countries (see also Table 4.8)." In addition, even if higher labour productivity (or less man-hours per tonne) alone does not guarantee more output per worker in the case of the relatively small average number of working hours per worker, Korea's performance in terms of output per worker has been remarkable, surpassing the levels achieved in competing countries in the 1980s (Table 4.10).^ This implies that one of the important sources of 33. If total factor price could be specified in terms of hourly rate such as total input price per hour, higher productivity of labour time would result in lower total production cost per unit output, given the total input price per hour.

34. In relation to operating rates, Findlay (1990) argues that the number of hours worked per worker also influences the ability to utilise a steel plant in a way that, other things being equal, longer working

Korea's international competitiveness in steel-making is its cheap but abundant supply of skilled labour, that is, a labour force with low wage rates per hour, long working hours and competitive productivity levels relative to other competing countries in the world steel market.

CONCLUSION

Despite being a resource-poor country, Korea has seen its steel industry grow remarkably. The dynamics of comparative advantage in Korea's steel-making, which can be summarised as being rapidly strengthened from the early 1970s until the mid-

1980s and beginning to decline in the late 1980s despite continuing output and export growth, are evident from a number of perspectives: the relative importance of steel in Korea's manufacturing output, exports, imports and employment; the importance of Korea in world steel production, consumption and trade; and the changing structure of comparative advantage within its steel industry. The rise of the industry was closely associated with changes in supply-side factor conditions represented by rapid economic growth and industrialisation relative to the rest of the world, at the expense of developed countries where steel-making is matured and/or declining. Steel industry competitiveness in Korea has its origins in a comparative production cost advantage, which stems mostly from its relatively cheap and abundandy supplied skilled labour creating high labour productivity both in per man-hour and per worker terms. All these factors are consistent with the framework proposed in the dynamic comparative advantage model.

Bearing these in mind, the development of the Korean steel industry with respect to changes in the supply-side conditions of the economy can be summarised as follows.'^

In the early stages of economic growth in the 1960s, Korea specialised mostly in unskilled labour-intensive light industries. Despite low labour costs, the steel industry had a comparative disadvantage due to skill shortages and poor technology. The intensities of both steel production and consumption were very low by international standards. The demand for steel was small, though increasing, and concentrated in long products, and the country was relatively more self-sufficient in long products than flat products, though overall a net importer.^^

hours per worker mean the plant can operate for longer hours.

35. See Findlay (1990, pp.32-34) for an excellent summary of the steel industry development paths using