ENVIRONMENTAL REGULATIONS AND PRODUCTIVITY GROWTH

Abstract

One of the primary mysteries of economic performance in the 1970s has been the slowdown in the rate of productivity growthand an even more serious absolute reduction in productivity in the later years of the decade. As Barry Bosworth points out in this volume, this decline in productivity reflects a fundamental problem in macroeconomic performance, and underlies other symptoms of economic malfunction. For example, accelerating inflation rates may well generate inefficiencies in the economy which contribute to a decline in productivity growth. Conversely, to the extent that deficiencies in the aggregate supply of output relative to aggregate demand create inflationary pressures, low rates of productivity growth may contribute to these pressures. Stagflation and declining rates of productivity growth are part of the same phenomenon. Many causes have been suggested for stagflation and declining productivity growth, including increased energy prices, a slowdown in capital investment, changing composition of outputs (from high to low productivity growth industries), changing composition of the labor force (from prime-age males toward youths and females, both with relatively short histories of labor market activity), a decline in the nation's work ethic, and regulatory activities-in particular environmental regulations. The first section of this paper discusses the concept and measurement of productivity growth and its performance over the past several years. In the second section, the main hypotheses concerning the recent slowdown in this indicator of economic performance are identified. The third section examines one of these hypotheses: that governmental regulations are responsible for slowing down productivity growth. In particular, it identifies the channels by which regulations,