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Published online by Cambridge University Press: 10 December 2009
The worldwide slowdown in productivity growth since the early 1970s has continued to puzzle economists. The failure to identify any convincing single cause has led to a shift in research away from aggregate studies toward more detailed research at the industry level. Along with construction and mining, the electric utility industry is one of three U.S. industries that have suffered the sharpest deceleration of productivity growth and thus is a natural candidate for detailed study.
Three special advantages commend the electric utility industry for analysis. First, its output is unusually homogenous, thus minimizing the usual problem of errors in measuring output. Second, as a regulated industry, the production process of electric utility generation is documented in an unusually detailed body of micro data at the establishment level. Third, electric utilities should be a fertile ground to test several of the most prominent single-cause theories of the aggregate productivity slowdown, including those that emphasize the role of energy prices, capital accumulation, environmental regulation, and the “depletion” of technology.
This paper provides new estimates of factor demand equations for labor and fuel use at the establishment level for fossil-fueled steam-electric generating plants, using a data set that has been newly developed for this study. It attempts to link the results to three strands of literature that have developed largely in isolation, (1) the macro-oriented literature on the economy-wide productivity slowdown, (2) the industrial organization literature on public utility and environmental regulation, and (3) the econometric literature on production technology and factor demand in the electric utility industry.
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