Wages in the steel industry: Take the money and run?

Sharp increases occurred in the wages paid by integrated steel firms in the 1970s despite reductions in employment caused by the industry's decline. This article reviews several explanations suggested for this puzzling outcome and evalutes them using information on the size and timing of wage increases, on investment decisions, and on expectations about future inflation and demand growth. Overly optimistic expectations for demand growth and unexpected inflation appear to explain much of the data.