The Independent makes this its Big Question for the day after Corus announced it was laying off 3,500 workers, 2,000 of them in the UK.The demand for steel is a textbook example of 'derived demand' - steel is demanded primarily by the car manufacturing and construction industries, so falling demand in these sectors has reduced the demand for steel. In turn this has created excess supply in the industry and over-capacity. The response is to cut jobs. Whether these jobs are lost permanently depends upon a number of factors. An eventual upturn in demand should ensure a revival of output (hence why Corus has mothballed production facilities rather than closed them). However, strong competition from China may mean that production of steel in the UK and the rest of Europe is simply too costly - despite the huge gains in labour productivity in the last twenty years.
My challenge to Year 10 students
What is meant by labour productivity?
Click on the chart at the top right of this blog and tell me by how much productivity in the UK steel industry has increased since 1988.
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