Productivity growth in the paper and paperboard industries: a variable cost function approach

Abstract

Annual indices of total productivity growth were calculated for the paper and paperboard industries of the United States between 1958 and 1981. The procedure relied on the hypothesis that each industry minimizes variable costs, conditional on the level of the remaining inputs. The variable cost functions revealed short-run economies of scale but long-run diseconomies, suggesting inefficient capacity expansion. Derived demands for energy, labor, and materials were inelastic. Demand for energy was much more responsive to price than labor and materials. There were substantial substitution possibilities between energy and materials and between labor and materials, but none between labor and energy. The productivity indices that were computed showed a slightly increasing rate of productivity growth between 1958 and 1973, with a marked slowdown thereafter. This slowdown was explained by the rise in the price of energy. Average productivity growth was three to four times faster in the paper than in the paperboard industry between 1958 and 1981. This difference was partly explained by higher energy intensiveness and lower labor productivity growth in the paperboard industry.