Productivity Trends in the Natural Resource Industries

This paper examines multi-factor productivity trends in the U.S. petroleum, coal, copper and logging industries since 1970. Measures of multi-factor productivity growth are negative for all four industries during the 1970s. At the time this led to fears that stocks of natural resources were being exhausted, and this might hinder future economic growth. However in retrospect the 1970s look like an exceptional period, rather than marking a change in long run productivity trends. The decline in measured multi-factor productivity in that decade appear to be explained by a number of special factors that generally have a transitory rather than a permanent effect on productivity growth. For example, the rise in natural resource prices encouraged the entry of relatively inefficient producers. New environmental and health & safety regulations were phased in during the period that also reduce measured multi-factor productivity. Over the last 15 years however, productivity measures have improved significantly in all the industries. For example, we estimate that the level of productivity in 1992 was around 75 percent higher in the petroleum industry than at the trough of the productivity slowdown, and around 60 percent higher in coal and copper. To some extent these improvements represent restructuring and consolidation in response to falling output prices. However, technological developments have also played an important role in all four industries.