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Chapter 5: returning to labor, capital, land & technical skills. How important are these factors in the cost of production? What are key variations spatially How does scale affect our view of these issues?

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chapter 5 returning to labor capital land technical skills
Chapter 5: returning to labor, capital, land & technical skills
  • How important are these factors in the cost of production?
  • What are key variations spatially
  • How does scale affect our view of these issues?
  • Going beyond the text: the issues raised in this chapter are fundamental to consideration of economic activity for the rest of the quarter
labor

Labor

How important is labor as a location factor for manufacturers?

Lloyd & Dicken – my old textbook: Production workers 25% of value added, All labor 46% of value added

What is value added?

Value added = value of shipments - cost of goods sold

an example of value added margi beyers pizza bread stone

An Example of Value Added: Margi Beyers Pizza/Bread Stone

Wholesale: $16.

Less:

Cost of clay $ 4

Cost of glaze $ 1

Cost of energy $ 2.50

Other overhead (labels) .50

Transport Cost (Raw Material

+ Delivery .50

Capital Charges (kiln, equipment) 1.00

Subtotal $9.50

Value Added $16 - $9.50$6.50

slide4

Wages per dollar

of value added

Average = .26

slide5

Wages per dollar

of shipment

Average = 12%

slide6

Production workers as

a proportion of total

Employment

Average = 71%

labor costs among regions

Labor Costs among regions

Production work pay/hour $6.68 to $12.34 in 1983

In 1997 - Low $9.96 South Dakota

- Mean $13.17

- High $17.17 Michigan

Classic view of wage rate equilibrium:

D

$

S

S

WA

D

S

WB

D

D

S

QA

QB

slide8

*

*

*

*

*

*

*

*

* Right to

work states

*

*

*

*

*

*

*

*

*

*

*

*

*

U.S. Average = 13.9% of Wage & Salary Workers

evidence on regional wage rate convergence

Evidence on Regional Wage Rate Convergence

Historic movement of blacks from the South to the Industrial North

Mexican migration into the U.S. today

Internal movement in the U.S.: job pull

for $?

Producers ability to move capacity to cheap labor - U.S. shoes, textiles

Social, Environmental

weber s analysis of low cost labor
Weber’s Analysis of Low Cost Labor

Critical Isodapane -

Tr. Cost = Labor Cost

Differential

4

W

M3

M1

5

2.5

1

L

C

M2

At W labor costs are $5 per unit output below L

Isodapanes - contours of transport cost increase away from L

unionization rates labor cost differences

Unionization Rates & Labor Cost Differences

A falling percentage over time:

1983 20.1%

1991 16.1%

1999 13.9%

2007 12.1%

Wage Rates above Non-Union

2006 $23.33 per hour - union

2006 $18.53/week - nonunion

labor costs versus labor productivity skill as a factor in regional development

Labor Costs Versus Labor Productivity/Skill as a Factor in Regional Development

Washington State Investment In Human Capital Study

% of companies dissatisfied with employee skills:

(1) Basic- ca. 35%; communication ca. 40%, problem-

solving 48%, work habits - 42%

(2) Educational - difficulty in finding employees:

basic skills below high school: 38%, high school 56%,

job related specialized skills 86%, liberal arts degree 59%,

advanced degree 67%.

(3) Key needs - in Training Programs, and in types of

training provided.

local examples of labor force programs

Local Examples of Labor Force Programs

Washington State Workforce Board

Puget Sound Regional Council Prosperity Partnership

WorkSource Oregon

Idaho Workforce Development Training Program

geographer s new views of labor and regional advantage

Geographer’s New Views of Labor and Regional Advantage

Storper’s vision of “untraded interdependencies” as regional assets

Economic Sociology:

- Institutionalism; embeddedness; structure and social reproduction; networks; other key factors?

thomas friedman nyt reporter
Thomas Friedman – NYT Reporter
  • Advocate of globalization, but also the need for labor force development here in the U.S. in the face of this trend
  • His recent book was on the NYT best-seller list
  • He editorialize for support for an ex-M.I.T. president-headed report called “Rising Above the Gathering Storm.”

Link: www.nationalacademies.org

slide17

Friedman’s Ten Flatteners:

  • Outsourcing
  • Offshoring
  • Open- Sourcing
  • Insourcing
  • Supply Chaining
  • In-forming (search engines)
  • The Internet
  • Fall of the Berlin Wall
  • Netscape’s Public Offering
  • Work Flow Software
  • The Steroids (Digital,
  • Mobile, Personal and
  • Virtual)
  • He argues together they have
  • allowed unparalleled
  • collaboration
friedman concludes about the u s
Friedman Concludes about the U.S.:
  • Clearly, offshoring business services is intimately tied to
  • other ongoing forms of restructuring
  • It provides challenges and opportunities for advanced
  • economies as well as developing countries
  • There are significant research opportunities
  • There are also many policy challenges
capital sources startup versus later in firm life

Capital Sources: Startup versus Later in Firm Life

Startup: Personal Sources, “mattress money,” “Business Angels,” Venture capital, IPO’s, and business loans

After Startup: Internal retention of profit, (further) stock offerings

reliance on formal capital markets

Selling out, being acquired to obtain capital

for expansion

the circular model of capital flow
The Circular Model of Capital Flow
  • Interest rates
  • Tax policy & public
  • investment

Stock of Productive

Capacity

Industrial

Output

Final Consumer

Demand

Investment

“Savings”

Business

Income

(Value Added)

Payments to

Households

“Savings” - retained earnings, household savings, institutional

investors, international capital sources

slide25

Evidence of long-term reductions in capital tied up in inventories

due to better logistics in the product delivery system

regional differences in the availability of capital
Regional Differences in the Availability of Capital

DB

Interest Rate

SB

SA

DA

QB

QA

Capital Flows respond to interregional/international

variations in interest rates, but:

1. Lender conservatism

2. Institutional impediments

3. Structural differences

capital mobility

Capital Mobility

Immobility of physical capital

High level (potentially) of mobility for monetary capital, but:

(A) institutional impediments - nations, trading blocs, currencies

(B) industrial differences - firm size, age,

business concept

(C) public policies - incentives such as tax write-offs, lower interest rates

(D) new forms of integration (IT networks),

new types of securitization (e.g. REIT’s) & use of Modern Portfolio Theory

spatial variations in the cost of capital

Spatial Variations in the Cost of Capital

Historic fragmentation of capital markets

Much more integration now, but still:

A: “herding and fleeing” in commercial real estate markets

B: internationalization of markets yet institutional/cultural variations in practices

C: changes in investor culture: IPO’s & .com

phenomena

managerial and technical skills corporate headquarters
Managerial and Technical Skills:Corporate Headquarters
  • The concentration of these in a few very large cities
  • Synergistic interactions at the top of the corporate hierarchy
  • Decentralization of these headquarters
  • Structural relationship between headquarters location and location of R&D facilities – historic geographic co-location
slide34

Distribution in

cities has gotten

more unequal in

recent years,

largely due to

big changes in

the West.

The big gainers have been

Driven by Boise,

Rochester NY, Austin-

San Marcos, Burlington,

Ft. Collins-Loveland,

And Rochester MN

technical knowledge

Technical Knowledge

Fundamental to any type of production system

Constantly changing - Schumpeter’s view of the “process of creative destruction” -

invention: autonomous vs. induced

innovation: widespread adoption of inventions

product versus process change

The R&D Process in manufacturing

patents as indicators of success at invention

2008 u s r d sources of funds
2008 U.S. R&D Sources of Funds

Source: Statistical Abstract of the United States 2012

r d objective use of funds 2008
R&D Objective Use of Funds 2008

Source: Statistical Abstract of the United States 2012

composition of r d effort 2008
Composition of R&D Effort 2008

Source: Statistical Abstract of the United States 2012

slide41

Performance Sector, R& D United States 1999

N.P

2.6%

7%

University

13.9%

8.1%

67.1%

Source: Statistical Abstract of the United States, 2000

performance sector r d u s 2008
Performance Sector R&D U.S. 2008

Source: Statistical Abstract of the United States 2012

slide43

Other Industries - $40.9 billion

Source: Statistical Abstract of the United States, 1998

technical knowledge45

Technical Knowledge

Spatial Concentration of R&D activity Mobility and Availability of Technical Knowledge in Space

Regional Consequences of R&D Effort

Research at the UW - Impacts on local industrial development

slide46

Data not

Disclosed

Alabama

in this group

slide47

Not Disclosed

AL in

this group

slide48

1.19

2.84

slide49

D

0.27

slide50

1.34

1.10

slide51

.61

.52