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October 1992, Vol. 115, No. 10
Multifactor productivity in manufacturing, 1984-88
According to newly released multifactor productivity data for the 1984-88 period, the slow growth prevalent throughout the U.S. economy over the 1974-82 period has improved substantially in manufacturing.1 For many broad manufacturing industry groups, productivity growth trends since 1979 are comparable to those from 1949-73, when productivity growth was faster. However, slow growth persists in the more aggregate business sector.
Certain trends relating to productivity became apparent in the 1970's, especially after the Arab oil embargo in 1974 and the recession that followed. During the energy crunch, fuel prices rose almost 150 percent in a 4-year period, 1973-77 (after energy prices had actually fallen throughout the 1960's). Researchers began to suspect that energy price movements of this magnitude could affect the use of other inputs - especially investment in capital goods, in turn, thought to be an important contributor to labor productivity growth. The situation was essentially similar in the case of nonfuel raw materials, a category of input much larger than fuels. Manufacturing materials prices rose by 5 percent over the 1949-69 period, and by more than 300 percent during the 1970's. Lastly, increases in the use of business services came to light. Business services include computer services and equipment leasing, among other important services, all of which could have an important role in production and employment.
These trends spurred the Bureau of Labor Statistics to enhance the level of industry detail in the multifactor productivity program so that growth could be closely analyzed, rather than viewed in the aggregate. At the same time, the Bureau expanded the scope of these measures to include raw materials and business service inputs, allowing assessment of economies in those inputs along with labor and capital. Thus, multifactor productivity measures for manufacturing industries compare output to five categories of input - capital, labor, energy, nonenergy materials, and business services (collectively identified as KLEMS). This allows study of the changing relationships between various inputs in production, between input and output price, as well as the growth of multifactor productivity among industries.
This excerpt is from an article published in the October 1992 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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1 All data used in this study are for two-digit manufacturing industries from the Standard Industrial Classification Manual, 1972 Edition (Washington, DC, Office of Management and Budget).
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