The Competitive Status of the U.S. Auto Industry A Study of the Influences of Technology in Determining International Industrial Competitive Advantage (1982) / Chapter Skim
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Appendix A: Estimates of Comparative Productivity and Costs Under Alternative Methods
Appendix A: Estimates of Comparative Productivity and Costs Under Alternative Methods
Pages 169-188
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From page 169... ...
The second, the industry/micro view, looks at the issue from the standpoint of the industry taken as a whole. The third, the company perspective, uses data on two major firms, as detailed in their annual reports.
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From page 170... ...
In 1974 Baranson estimated that output per labor hour in the Japanese motor vehicles and parts industry was 88 percent of the level reached in the United States (i.e., the ratio of productivity in Japan to productivity in the United States was 0.88~.2 This 12 percent U.S. advantage in 1974 is consistent with calculations developed by the British Central Policy Review Staff; using 1973 data they estimated the relative productivity ratio to be 0.82.3 These estimates can be updated using published data on growth rates of productivity in the United States and Japan.
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From page 171... ...
differences in the growth of productivity and compensation have been offsetting; the wage gap has continued to narrow, while a productivity gap has emerged and grown larger; relative unit labor costs remained roughly constant at 0.425 over the 1974-1980 period. We assume that the estimate of relative unit labor costs applies both to the auto manufacturers and to their suppliers.
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From page 172... ...
172 Ct ~ Cal o ~ ~ Ce X CQ ~ O ~ ^ ~ ~ ~ _ - , .o Cal Cal o V) so clot o V so a' _)
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From page 173... ...
9 Thus, column 7 provides an estimate of the difference in the cost of producing a small vehicle in the United States and in Japan due to differences in unit labor costs, not only at the OEM level but also at the supplier level as well. The estimated cost gap is sizeable.
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From page 174... ...
Data on total domestic employment and total domestic employee costs were broken down into automotive and nonautomotive components based on the ratio of automotive to total sales. This effectively assumes that nonautomotive businesses were as productive and as labor intensive as the automotive group.
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From page 175... ...
The procedure uses data on manufacturing costs by vehicle size class developed for the Committee on Motor Vehicle Emissions of the National Research Council in 1974.~4 Estimates of the cost to Ford of producing the Toyo Kogyo mix were obtained by first computing a weighted average of the relative manufacturing cost indexes with Ford's 1979 production shares by size as weights. The ratio of the comparable Toyo Kogyo weighted average (1.06)
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From page 176... ...
After these adjustments we estimate that Ford would require 87 employee hours to produce the average-size vehicle in the Toyo Kogyo product line, compared to 56 hours in the Japanese firm. Labor cost per vehicle is just over $1300 higher at Ford.
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From page 177... ...
Those estimates applied to the entire motor vehicles and parts industry and were admittedly r ough and imprecise. It is not unreasonable that relative productivity at the OEM level would exceed levels achieved by suppliers.
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From page 178... ...
8 Together with other automatic devices these features allow the Japanese to achieve output rates of 550 panels per hour versus 300-325 in the United States. The plant comparisons do not provide a complete set of cost figures, but the data can be used with previous information to obtain estimates of employee cost per vehicle.
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From page 179... ...
The procedure may thus understate the cost gap. The Impact of Capital The difference in labor productivity estimated here may be affected by differences in capital, which may in turn affect cost comparisons.
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From page 180... ...
180 <~ K fit: y ~ KUs <: Kj Panel 1 / J Lj \ LABOR (L)
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From page 181... ...
Capital-Labor Ratios (dollars) $15.330 $1.539 $1.269 26.975 2.509 2.068 $2.939 $0.077 $0.077 Capital per employees Book value $40,063 $ 63,113 $52,003 Adjusted 65,599 100,888 83,128 Capital per labor hours workede $24.73 $33.22 $27.37 Adjusted 40.49 53.10 43.75 Capital Productivity (dollars)
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From page 182... ...
and Japanese auto firms are using equipment of comparable vintage. it does appear, however, that the Toyo Kogyo data may overstate the average age of the capital stock for all Japanese automobile manufacturers.
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From page 183... ...
, capital differences might explain a labor productivity difference of 30 percent, rather than the difference of 55 percent we actually observe. If we use a capital share of 0.3, the potential impact of differences in capital-labor ratios between the United States and Japan on labor productivity ranges from 2.4 to 17.3 percent, depending on the specific definition of capital and labor used.
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From page 184... ...
If we also use the same adjustment for vertical integration that we used in the labor productivity analysis, we would increase Toyo Kogyo's book value per vehicle by 15 percent, from $1639 to $1885. The product mix adjustment is likely to understate capital per vehicle at Ford, because capital input does not increase with the size of the vehicle as rapidly as labor and materials.20 Even so, these adjustments show that the Japanese firm uses less capital per vehicle than its U.S.
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From page 185... ...
x 0.153. Finally, if we use book value per vehicle and the general exchange rate, and apply the product mix adjustment and the adjustment for vertical integration, the result is a Japanese advantage of $68 t(52340$1885)
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From page 186... ...
and Japanese compensation rates in the motor vehicles and equipment industry as follows: Average Hourly Earnings United States $9.81 $14.71 Japan $5.96 $ 6.98 Hourly Compensation Source: Unpublished data, U.S. Bureau of Labor Statistics, October 1981.
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From page 187... ...
and C(~) be unit labor costs in the United States and Japan, respectively.
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From page 188... ...
~ go 19. See Abernathy (1978)
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