Productivity as a Factor in Economic Prosperity and the Appropriate Federal Role

A recent GAO evaluation of the National Center for Productivity and Quality of Working Life dealt with the effectiveness of the Center and the Federal role in national productivity. Improved productivity is an important factor in economic prosperity because it can mean an improved standard of living for workers; it lessens inflationary pressures; and it is important in maintaining the competitive position of the United States in the international economy. The average annual rate of increase of productivity in the private business economy from 1967 to 1977 was 1.6 percent, half that of the period between 1947 and 1967. This rate is the lowest average annual rate in manufacturing productivity among six industrial nations during the period 1967-1977. Factors affecting the decline in productivity growth include: shifts in the industrial composition of the economy; changes in labor force composition; slowdown in the rate of improvement in the capital-labor ratio; slowdown in research and development expenditures; diversion of capital investment to meet environmental, health, and safety requirements; stagnation of some industries; and changes in worker attitudes. Future productivity rates are estimated at 2 percent or lower, with the outlook contingent on correcting the causes of the depressed rates. Improved productivity in small business depends mostly on improvements obtained from outside sources. The Federal Government can affect productivity indirectly by establishing policies and laws which affect demand, supply, and investments; setting standards and regulating quality of output and input; and defining the social and economic context in which business enterprise must operate. It has a direct impact through ongoing programs administered by individual agencies.