An Enterprise Model of Rising Ship Costs: Loss of Learning Due to Time between Ships and Labor Force Instability

Abstract

Since the end of the Cold War, the perceived need for Navy ships has dropped, and so the shipbuilding budget has dropped. Seemingly coincidental with this budgetary pressure, and perversely aggravating the problem, ship costs began to rise steeply. We will set aside that ships have grown in weight by about three percent per year since World War II and that ever-more weapon systems are being put into them, and confine ourselves to discussions of costs rising for ships beyond the increase in ''content.'' We will also set aside rises due to commodity prices and inflation and that fewer ships, divided among a fixed industrial base, reduce the base for overhead and reduce opportunity for the effects of quantity-driven learning; these effects are well understood, and yet cost growth in ships exceeds that which they explain. This paper will show two additional effects, each of which causes ship direct labor to rise in a way that has never been adequately modeled. The paper will demonstrate, via a statistically significant model, cost growth both from loss of learning due to increased time between ship starts as well as from the lessening of efficiency due to inexperienced labor caused by fluctuating demand.