Vertical Integration and Derived Demand

This story segment from the local Hibbing Tribune newspaper about the demand for steel and therefore the derived demand for workers in the steel industry is relevant to the local labor market, but also a great example of market signals and responses. As it turns out the vertical integration within the steel industry has allowed market signals to be read more quickly and labor markets are responding more quickly as well.

More precisely, they’re saying that mining companies can adapt more quickly to market conditions than they could in the past, and the reason is the iron mining and steel industries have become “vertically integrated.” That is, mining companies have been folded into larger corporations that control multiple steps in the sequence from mining to the production of finished steel. Barry D. Lesar, St. Louis County’s inspector of mines, said that when demand for steel plummeted, mining companies in the region reacted quickly. Mines throughout northeastern Minnesota have sharply cut production. Since December, workers at Hibbing Taconite, Keewatin Taconite and Minntac in Mountain Iron — hundreds of workers in all — have been laid off. That’s the bad news. The good news, Lesar and others say, is that when the market for steel revives, those workers could be put back to work with equal speed.