ECONOMIC

Consumer prices of fuels during 1977 will probably not be affected bythe removal of price controls on petroleum products. Controls were removedfrom distillate and residual fuel oils in mid-1976 without a noticeable impacton inflation. The supply of gasoline appears to be more than adequate tosatisfy projected demand at prevailing prices, so that the removal of pricecontrols from gasoline would not have adverse inflationary consequences.PRODUCTIVITY GROWTH AND RESOURCE UTILIZATIONIn designing economic policy to cope with cyclical fluctuations in economicactivity, it is important not to overlook the longer-term issue ofgrowth. In the past 25 years more than two-thirds of the increase inreal national output has been generated by increases in average laborproductivity, or output per labor-hour. Over the past decade, however,productivity growth has shown a marked decline, even after adjusting forcyclical effects. Since 1966 the trend rate of growth in measured output perlabor-hour has decreased by about one-third from the rate attained in the1950s and early 1960s. If productivity gains continue to be small, real wageswill continue to grow more slowly than in the 1950-65 period.THE PRODUCTIVITY SLOWDOWN, 1966-76Productivity growth in the private sector averaged 3.3 percent per yearbetween 1948 and 1966, almost 1 percentage point above the 1929-75average. Between 1966 and 1973, however, the private productivity growthrate was only 2.1 percent per year, below the long-run trend. This sloweradvance may have contributed to increased inflationary pressures and mayhave led to lower growth in real wages.As shown in Chart 3 the reduction in private productivity growth is striking.While part of this poor performance can be attributed to the recentrecession, the falloff in productivity was evident even before 1974. Slowergrowth in capital per worker, a larger proportion of less experienced workersin the labor force, and the changing industrial composition of labor inputhave all contributed to this slowdown. Higher relative energy prices andslower technical progress may also have played a part. However, thereasons for the slowdown are not fully understood at this time because thedecline in productivity growth appears to be larger than the sum of the estimatedeffects of these factors.Growth of Capital and LaborOne important source of productivity growth is the increase in the amountof capital per hour of labor input. Between 1948 and 1966 capital perlabor-hour in the private sector grew by about 3.1 percent per year; duringthe 1966-73 period this growth rate fell to 2.8 percent per year. Since 1973the growth of capital per labor-hour has apparently fallen to 1.7 percent,45224-250 O - 77 - 4