THE PRODUCTIVITY SLOWDOWN OF THE 1970S
September 1, 2005
The slowdown in productivity growth during the 1970s was not unusual, even though it was larger than any slowdown since the end of World War II, says William Nordhaus, a Research Associate at the National Bureau of Economic Research.
In his study, Nordhaus analyzed long-term data on U.S. productivity growth by detailed industry to examine productivity trends prior to the 1970s slowdown as well as to break down the productivity slowdown by industry. He used different methods for decomposing the changes in productivity growth, including a measure he calls "well-measured output" (WMO). WMO only includes sectors with adequate deflation and price procedures, and shows a consistently higher rate of productivity than other measures.
- For total productivity from 1948 to 2001, WMO displays productivity growth of 2.59 percent as compared to 2.06 percent per year for the business sector.
- The traditional measure of productivity growth (defining productivity growth as the difference between the growth rate of output and the growth rate of inputs) shows a larger slowdown than other measures.
- The "welfare theoretic measure" -- defined as the productivity growth weighted by industry shares of nominal output -- shows an annual productivity slowdown of 0.69 percent, some 0.17 percent per year less than the rate of total productivity growth.
Nordhaus also investigated the sources of the productivity slowdown by detailed industry, comparing the 1959-73 period to the 1973-95 period. The largest slowdowns were in pipelines, auto repair and oil and gas extraction -- industries heavily affected by the energy crises of the 1970s. Industries affected by the 1970s energy crisis make up some two-thirds of the slowdown.
However, past is not prologue, Nordhaus explains. The productivity slowdown of the 1970s eventually gave way to a rebound in productivity growth in the new-economy sectors of the late 1990s.
Source: Carlos Lozada, "The Productivity Slowdown of the 1970s," NBER Digest, June 2005; based upon: William Nordhaus, "Retrospectives on the 1970s Productivity Slowdown," National Bureau of Economic Research, Working Paper No. 10950, December 2004.
For study text:
Browse more articles on Economic Issues