Effects of Pollution Control on Industry Productivity: A Factor Demand Approach

Abstract

Four major manufacturing industries are examined. The abatement effect on capital and labor productivity are determined from parameters of a system of factor demand equations which allow for disequilibrium in factor markets. The system is estimated for each industry with annual time series data from 1960 to 1980. Abatement requirements were found to retard both average capital productivity and average labor productivity in three of the four industries; paper, chemicals and primary metals. For several industries in which factor productivity was slower after 1973, environmental controls accounted for a significant proportion of that slow down.