Why is American productivity on the decline?
Economists and top government policymakers wish they had the answer.
The deterioration in U.S. producitivity growth has been a major factor in exacerbating inflation in recent years. Unless output per work-hour rises steadily, wage increases quickly translate into higher production costs, and prices go up sharply.
The dilemma is, economists haven't been able to agree on why productivity has been lagging so. Theories abound: Analysts variously blame everything from higher tax burdens and mounting government paperwork to a decline in the work ethic.
Now, a new study by one of the nation's most respected economists concludes that none of these factors has been a major contributor and, ironically, declares the decline in American productivity growth to be a continuing "mystery."
In an exhaustive study, Edward F. Dension, a Brookings Institution economist now at the Commerce Department, says the most likely explanation is simply that a lot of things "went wrong at once" -- inflation, soaring energy prices, mounting regulation.
However, Denison offers no new prescription for how to reverse the current decline and notes that -- contrary to popular perception -- most of the other industrial nations, including Japan, are suffering from the same disease.
Denison's findings, the results of a four-year study that alreadly has involved some landmark work on the impact of pollution control requirements on productivity, are contained in a 212-page report published yesterday by the Brookings Institution.
A portion of Dension's conclusion, dealing with the effect of government pollution control and safety requirements in diverting labor and capital form productivity-increasing investments, was made public earlier this year.
For all Dension's failure to come up with a villain on the productivity issue, some of his most surprising conclusions lie in debunking several of the most widely cited "causes" of the recent productivity decline.
Denion's examination deals primarily with a falloff in productivity since 1974. Until a decade ago, U.S. productivity grew an average 3.2 percent a year. In the late 1960s, this slackened. In 1974, productivity growth began to erode seriously.
Dension says at least part of the recent decline can be attributed to a few big factors -- the 1974-75 recession, increasing pollution control and safety requirements, the changing makeup of the labor force and slower accumulation of capital in the United States.
But he says by far the bulk of the erosion -- some 2.2 percentage points out of a total 3.6 percentage-point shift by one measure -- simply can't be explained very plausibly. And he carefully pokes holes in some of the most often cited "causes" of the recent drop.
For example, while many analysts blame the cutback in spending on research and development for some of the productivity dip, Dension concludes after examination that it's unlkely that R and D cuts accounted for even 0.1 percentage point of the drop.
He also assigns only a scant contribution to such frequently listed villains as rising corporate tax burdens, increasing energy prices, increasing government paperwork, delay of new projects as a result of government regulations and the work ethic dilemma.
After all is said and done, Dension contends, "no single hypothesis" can explain the sharp drop in productivity growth that has occurred since 1974, and -- by implication -- there seems to be little that's obvious that can be done to reverse it.
Dension is now associate director for national economic accounts of the Bureau of Economic Analysis of the Commerce Department.