ENERGY PRICE SHOCKS AND PRODUCTIVITY GROWTH IN US AND UK MANUFACTURING

Abstract

Because sustained changes in the trend of productivity growth are so very important for people's long-run economic welfare, the dramatic productivity growth slowdown of the 1970's and early 1980's has been the focus of much analysis and discussion. For some observers, it was much more than coincidence that the oil price shocks of 1973-74 accompanied the sharp slowdowns in traditionally measured productivity growth, not only in the United States and the United Kingdom, but throughout the industrialised world. However, establishing, quantifying and explaining sig nificant linkages between energy price shocks and productivity growth has proved to be most difficult. Traditional and time-honoured relationships involving productivity growth have all seemed incapable of explaining this slowdown . For example, Edward Denison, author of several widely cited productivity studies, has concluded that energy had essentially no role in explaining the productivity growth slowdown and that, moreover, What happened is, to be blunt, a mystery (1979, p 4).