Environmental Compliance Cost and Productivity Growth in US Manufacturing

Abstract

The decade of 1970s is generally known for its dramatic increases in the price of oil. What is less known, however, is the fact that U.S. industrial sector experienced a significant slow down in productivity growth during the 1970s and 1980s. While many studies have analyzed the economic impact of higher energy prices on industry, the research on productivity slow down has been rather slow. The task of unraveling the cause of this productivity mystery is further complicated by the fact that this period also marks the beginning of an era of unprecedented environmental controls as Congress passed a series of sweeping amendments to the Clean Air Act (CAA) law in the 1970s and again in 1990. As a result of these amendments to the CAA the U.S. industry was faced with mounting environmental compliance cost. While environmental regulations are generally believed to impair productivity few studies have considered environmental regulation.