Economic Report of the President

cause declining productivity growth brings with it prospects forslower improvement in our standard of living and contributes to inflation,a program to stimulate productivity growth must be a keystoneof economic policy.Table 8 summarizes the postwar history of growth in productivity.The data show a gradual worsening of the productivity decline astime has passed, with the last few years showing sharp declines. Whilejust completed revisions of the data may change the magnitude andtiming of the slowdown, its existence and its costliness are unarguable.TABLE %.—Labor productivity growth, 1948-80[Percent change per year]Sector1948 to19651965 to19731973 to19791978 IV to 1979 III to1979 IV 1980 IIIPrivate business sector..3.20.8-0.9-0.1Nonfarm2.6.6-1.1.1Note.—Data relate to output per hour for atl persons.Source: Department of Labor, Bureau of Labor Statistics.Some of the decline in productivity results from the way we measureit. In particular, productivity measurement counts as an input thecosts of governmental and private actions to ensure a cleaner environment,a healthier workplace, and safer consumer products, but itdoes not count the benefits of these actions as forms of output.It is difficult to interpret measures of productivity such as those inTable 8 without first distinguishing between changes caused by thebusiness cycle and changes caused by longer-term factors. Because itis costly to hire or to fire, businesses typically do not reduce theirwork force proportionally when demand slackens or increase it proportionallywhen demand is expanding. Chart 4 presents the recenthistory of productivity growth after correction for these cyclical influences.As the chart vividly shows, productivity grew very slowlyduring most of the years since 1973, and on several occasions actuallydeclined.It would not be surprising to discover that the slowdown has manycauses. Measured productivity growth is a distillation of a number ofchanges and influences. Many researchers have been in agreementthat a number of factors have contributed in roughly equal magnitudeto the slowdown. These factors have been discussed in past Reports.In addition to increased governmental regulation, particular attentionhas focused on increases in energy prices, declines in the rateof growth of capital relative to labor, and decreases in spending on69