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May 1993, Vol. 116, No. 5
John L. Glaser
T his article introduces a new BLS measure of multifactor productivity for the utility services industries, that is, electric, gas, and sanitary services.1 The measure relates output to inputs of capital, labor, energy, materials, and purchased business services. By contrast, the previously available BLS labor productivity measure relates output to labor input only.2 It is important to consider factors other than labor in measuring productivity for the utilities because capital, energy, and materials each account for a larger portion of utilities' total costs then does labor; thus, it is reasonable to expect the industry to strive for productivity gains in the use of these inputs. In particular, the heavy use of fossil fuels by utilities offers a unique opportunity to study the impact of past energy price increases on productivity.
After 1973, labor productivity growth slowed by 1.7 percent per year in the nonfarm business sector.3 A much larger slowdown of 6.4 percent per year occurred in electric, gas, and sanitary services. This finding is consistent with the view that the productivity slowdown partly reflected rising energy prices. Given the extensive consumption of fossil fuels by electric and gas utilities, large increases in the relative cost of energy would be expected to alter the optimal mix of inputs in this industry. Moreover, passing on higher energy costs would tend to reduce demand for the industry's output, limiting some important sources of productivity growth. Capacity utilization could fall, comprising existing scale economies. But, also, acquisitions of new plant and equipment could be delayed, along with any technical improvements associated with them.
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1 The utilities services industries are classified in Standard Industrial Classification (SIC) major industry group 49 and are engaged in the generation, transmission, and distribution of electricity; transmission and distribution (but not production) of natural gas; distribution of water and collection and disposal of waste. Government-owned utilities are excluded from the new measure to maintain consistency with the BLS measure of multifactor productivity for the private business sector. See Executive Office of the President, Office of Management and Budget, Standard Industrial Classification Manual (Washington, U.S. Government Printing Office, 1987), p.237
2 Indexes of output per hour and related measures for gas and electric utilities (SIC'S 491, 492, and 493) appear in Productivity Measures for Selected Industries and Government Services, Bulletin, 2406 (Bureau of Labor Statistics, April 1992).
3 This figure is the change in the rate of growth in output per hour worked from the 1948-73 period (2.5 percent per year) to the 1973-88 period (0.8 percent per year).
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