Corus - Labour Productivity in Action

Much press coverage in the last couple of days about Corus’ decision to reduce its workforce in the face of a severe decline in demand for steel. One interesting aspect of this move is how the UK steel industry (dominated by Corus with an 80% market share) has achieved significant improvements in labour productivity over the last couple of decades…

This super graphic from the Independent makes the point about labour productivity really well.

The grey columns show the total annual output of the UK steel industry. Back in the last recession (1991), industry output was approx 20 million tonnes. In that year, the industry employed approx 48,000 people. Using the traditional formula for labour productivity (output divided by people employed) that is around 416 tonnes per person.

Roll forward to 2007, and the numbers change somewhat. Output was around 17 million tonnes, produced by 18,600 people. That’s 914 tonnes per person - over twice the productivity of the industry compared with the last recession.

There will be many factors that influence labour productivity in the industry. The creation of Corus by merger back in 1999 will have focused management on eliminating duplicate or surplus labour + the impact of new technology will have helped. Production has also nbeen focused on a smaller number of larger steel mills, where the economies of scale can better be achieved.

Set against the background of falling demand, it is easy to see why Corus has taken the decision to reduce production capacity by lowering staff numbers. There might now be relatively few productivity gains to be achieved, so a capacity reduction has to be accompanied by redundancies.