The Role of Embodied Technological Change in the Decline of Labor Productivity

Abstract

In the 1970s, the United States experienced a dramatic slowdown in its labor productivity growth rate. After growing at a rate of nearly three percent per year from World War II through 1973, nonfarm labor productivity growth stalled. From the fourth quarter of 1973 through the first quarter of 1980, labor productivity grew at a mere 0.6 percent per year. Part of the residue of this or any other economic disaster is the blossoming of research interest into that particular problem. Much effort has been put into explaining the causes of such a steep decline in the rate of productivity growth. This literature on the determinants of productivity growth has identified a number of potential causes of the 1970s productivity disaster. Among the factors which have been identified as affecting the trend rate of growth in labor productivity are: a decrease in the rate of labor quality improvement, a dramatic increase in energy costs, an insufficient growth in capital stock, the enactment of growth hindering social regulatory policies (e.g., the Clean Air Act and the Occupational Safety and Health Act), and a slowdown in the rate of technological advancement. Although the productivity decline has inadvertently proven beneficial to the economic literature on productivity change and our understanding of the process of productivity enhancements, there is still much that needs to be explained about the 1970s. Denison's [3] careful growth accounting for the 1970s, which takes into account all of the hypothetical causes for the growth slowdown mentioned above and more, still finds a disconcertingly large unexplained residual. The residual in such growth accounting studies is partly attributed to technological change. This is, in part, the case since the impact of pure technological change is difficult, if not impossible, to measure in an independent manner. This large residual in growth accounting studies of the 1970s has been taken to mean that sluggish technological change played an important role in that decade's productivity growth slowdown.