Rational Atrophy: The US Steel Industry
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NBER Working Paper No. 6084
Issued in July 1997
NBER Program(s): PR
During the seventies and eighties the US steel industry received trade protection. However, these rents were not used to improve competitiveness. Instead, they were reflected in higher wages and a greater share of profits invested in sectors not related to steel. Moreover, the steel industry failed to adopt technological innovations on a timely basis and was displaced by the minimills. We rationalize these puzzling outcomes using a dynamic game between workers and firms.
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