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Forward Into the Past: Productivity Retrogression in the Electric Generating Industry

Listed author(s):
  • Robert J. Gordon

The electric utility industry is a prime culprit in the U.S. productivity growth slowdown of the last Iwo decades. This paper develops econometric labor and fuel demand equations for a large panel data set covering almost all fossil-fueled electric generating capacity over the period 1948-87. Labor productivity and fuel efficiency both advanced rapidly until the late 1960s and then both reversed direction, deteriorating substantially, particularly for newly constructed plants. The research goes beyond econometric estimation by conducting a set of telephone interviews with plant managers of establishments that registered particularly high or low productivity. The interviews reveal many variables and relations that are omitted in conventional econometric studies of production. They support the view that the productivity reversal originated in the manufacturing industry that produces electric generating equipment; after decades of increased scale, temperature, and pressure, a 'technological frontier" was reached in which new large plants developed unanticipated maintenance problems requiring substantial additions of maintenance employees. Environmental regulations also contributed to the productivity reversal but were secondary in importance to the technological barriers. Overall, the study supports the "depletion hypothesis" previously advanced to explain the productivity slowdown.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3988.

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Date of creation: Feb 1992
Publication status: published as Gordon, Robert J. (ed.) Productivity growth, inflation, and unemployment: The collected essays of Robert J. Gordon. Cambridge; New York and Melbourne: Cambridge University Press, 2004.
Handle: RePEc:nbr:nberwo:3988
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  1. Pakes, Ariel, 1983. "On Group Effects and Errors in Variables in Aggregation," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 168-173, February.
  2. William D. Nordhaus, 1980. "Policy Responses to the Productivity Slowdown," Cowles Foundation Discussion Papers 555, Cowles Foundation for Research in Economics, Yale University.
  3. Schmalensee, Richard & Joskow, Paul L., 1986. "Estimated parameters as independent variables : An application to the costs of electric generating units," Journal of Econometrics, Elsevier, vol. 31(3), pages 275-305, April.
  4. Martin Neil Baily, 1981. "Productivity and the Services of Capital and Labor," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 1-66.
  5. Jorgenson, Dale W, 1984. "The Role of Energy in Productivity Growth," American Economic Review, American Economic Association, vol. 74(2), pages 26-30, May.
  6. Robert J. Gordon, 1965. "Airline Costs and Managerial Efficiency," NBER Chapters,in: Transportation Economics, pages 61-94 National Bureau of Economic Research, Inc.
  7. Paul Joskow & Nancy L. Rose, 1985. "The Effects of Technological Change, Experience, and Environmental Regulation on the Construction Cost of Coal-Burning Generating Units," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 1-17, Spring.
  8. Hugh R. Wills, 1978. "Estimation of a Vintage Capital Model for Electricity Generating," Review of Economic Studies, Oxford University Press, vol. 45(3), pages 495-510.
  9. J. R. Norsworthy & Michael J. Harper & Kent Kunze, 1979. "The Slowdown in Productivity Growth: Analysis of Some Contributing factors," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(2), pages 387-422.
  10. Dale W. Jorgenson, 1984. "The Role of Energy in Productivity Growth," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 11-26.
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