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The Productivity Problem
JOHN A. TATOM

T
A HE American economy has been plagued by nu­
merous economic problems during the seventies. Of
particular importance, of course, are the relatively high
inflation and unemployment rates, the changing and
growing influence of government in individual lives,
and problems associated with the dramatic rise in
energy prices. Such issues have been widely recog­
nized during this decade.
One fundamental problem, however, has just re­
cently begun to attract increasing attention — the
slow growth of U.S. labor productivity in the seven­
ties. The Joint Economic Committee in its 1979 Mid­
year Report refers to lagging productivity growth as
the “Linchpin of the Eighties.”1 Likewise, a recent
examination of the major economic issues in 1979
begins with five studies on the productivity problem.2
Despite the recent flurry of attention, however, there
appears to be no consensus on the source of the slow­
down, its signficance, its impact on the economy or
economic policy, or the possibility or desirability of
policy reactions to the problem.3
Since productivity developments in the seventies
appear to be a puzzle, it is useful to examine carefully
the explanations that have been advanced in search
’ See Joint Economic Committee, Outlook 1980’s Midyear Re­
port and Staff Study, U.S. Congress, 96th Cong., (August
1979).
2See William Fellner, Project Director, Contemporary Eco­
nomic Problems 1979, American Enterprise Institute for Pub­
lic Policy Research, 1979.
3For example, the four factors cited most frequently at a re­
cent conference on productivity were a decline in capital
investment, a slowing in the introduction of new technology,
the changing composition of the labor force toward relatively
more inexperienced groups, and an increase in service em­
ployment relative to manufacturing employment. Barry Bosworth, head of the President’s Council on Wage and Price
Stability at the time, however, demonstrated that these ex­
planations are not significant in explaining the extent of the
current productivity problem. See the discussion of the con­
ference by Bradley Graham, “Productivity Problem Outlined,”
Washington Post, October 4, 1978. The article also points out



of a clue.4 Such an examination shows why the pro­
ductivity problem has only recently been generally
recognized and provides insight into the role of
government policy in reversing the adverse produc­
tivity developments of the seventies. Prior to consid­
ering the various hypotheses about recent produc­
tivity developments, a brief review of what is meant
by productivity, the sources of its growth, and recent
productivity developments is necessary.

PRODUCTIVITY AND
ITS GROWTH RATE
Productivity is a concept which relates the output of
a production process to the inputs used in the process.
There are several ways to view productivity since,
in most processes, several resources are used. One
may refer to labor productivity, which is the output
obtained per worker employed or per hour of work.
Similarly, the productivity of other resources, such as
physical capital or energy, may also be of interest.
A more general notion is that of total factor produc­
tivity which relates output to the entire set of physi­
cal resources used in the production process by as­
signing a weight to each resource employed based on
its relative importance in the production process.
that while Robert Strauss, then special assistant to the Presi­
dent on inflation and trade policy, noted at the conference
that “Productivity is a terrible problem for this nation,” the
government’s National Center for Productivity and the Quality
of Working Life, an institution chartered at the beginning of
this decade to study and promote productivity, was allowed
to go out of existence in October 1978.
4Edward F. Denison, “Explanations of Declining Productivity
Growth,” Survey of Current Business (August 1979), pp.
1-24, examines 17 factors which might account for the pro­
ductivity decline and finds them insufficient to explain the
puzzle. Several of the factors he considers and rejects, in­
cluding, for example, the “people don’t want to work any
more” hypothesis, are not discussed here. Denison’s views
differ from those presented here in that he dismisses both
energy developments and slow growth of the capital stock
as factors responsible for the decline.
Page 3

FEDERAL RESERVE BANK OF ST. LOUIS

One may understand more
clearly the different views of
productivity by considering
the production process itself.
In any production process,
output is obtained by organ­
izing the use of various re­
sources and utilizing a given
technology. Output may be
increased by using more re­
sources, by improving the
organization of the produc­
ing unit, or by introduc­
ing an improved technology.
If more output is obtained
through improved organiza­
tion or technology without
changing the level of re­
source use, total factor pro­
ductivity (the output per
unit of resources employed)
and the output per unit of
any single resource used will
increase.

SEPTEMBER

Chart l

Real GN P Per Worker*
ia 1972 D o llars

R a tio S ea l*
Thousands of D o lla rs P e r W orker

1948 49

50

51

52

53

54

R a tio Seal*
Thousands of D o lla rs F o r W o rker
16

55

56

57

58

59

60

61

62

63

64

65

66 67 68 69 70 71 72 73 74 75 76 77 78 1979
Sources: U.S. Department of Commerce and U.S. Department of Labor

'R eal GNP divided by total civilian employment.
Shaded areas represent periods of business recessions.
Latest data plotted: 2nd quarter

Output may be increased, however, by simply us­
ing more of a specific resource, such as labor, without
altering the methods of organization, the technology,
or the use of other resources. In this case, the output
obtained per unit of other resources rises, so their
productivity is higher. Whether output rises relatively
more or less than the increase in labor employment
determines how the productivity of labor changes.
According to the “principle of diminishing returns,”
the productivity of labor in such an example falls be­
cause the amount of other resources used per unit
of labor declines.
The analysis of productivity usually focuses on
measures of the productivity of labor. For the firm,
output per worker (or per hour) is important because
labor costs represent a major share of the total cost
of production. Consequently, changes in output per
worker have an important bearing on employment
and output decisions, as well as on wages and prices.
Improvements in labor productivity tend to lower unit
costs of output, and provide incentives for firms to
expand production. This, in turn, tends to result in
lower output prices (relative to those of other goods
and services) and/or higher wages for employees.
Labor productivity growth is also important at an
aggregate level, primarily as a reflection of economic

Page 4


1979

growth. Real income in an economy is often viewed
as the product of the size of the working population
and output per worker. Thus, growth in real income
per capita is primarily determined by labor produc­
tivity growth. The only other source of change of
real income per capita — a change in the percentage
of the population that is working — varies over the
business cycle because of fluctuations in employment,
but does not show any systematic tendency to in­
crease.5 Moreover, gains in real income per capita
from this source come at the expense of leisure and
home production, unlike productivity improvements
which permit increases in both nonmarket (for ex­
ample, leisure) and market income.
According to the discussion above, labor produc5Since World War II, the ratio of civilian employment
to the civilian noninstitutional population of age 16 and over
has reached about 58 percent at the peak of periods of eco­
nomic expansion. In the recent expansion, this ratio rose
slightly above 60 percent. In 1969 it was 58.0 percent,
while in 1978 it was 59.4 percent. This difference given
a constant level of labor productivity and population, ac­
counts for about .27 percent of the average annual real GNP
growth rate of 2.93 percent over the period. Herbert Stein,
“Why Did Consumption Not Reflect the Slackening of the
Productivity Trend,” American Enterprise Institute Econo­
mist (June 1979), reprinted in Fellner, Contemporary Prob­
lems, pp. 13-15, has noted that much of the productivity
slowdown of the seventies was compensated for by increased
participation in the labor force so that growth of real GNP
per capita did not slow as much.

SEPTEMBER

FEDERAL RESERVE BANK OF ST. LOUIS

Output Per Hour, Private Business Sector
R a tio S t a l l
1967=100
122

rr

118 -

112

106 -

100 -

94 -

■/
' 1948 49

SO

SI

52

S3

S4

55

56

57

i
S8

59

l
60

61

62

l
63

l
64

l
65

l
66

l
67

68

69

70

71

72 73 74 75 76 77 78 1979
Source: U.S. Bureau of Labor Statistics

Shaded areas represent periods of business recessions.
Latest data plotted: 2nd quarter

tivity is improved by increasing the employment of
other resources used by workers, or by improving or­
ganization or the technology used in production. Exam­
ples of the sources of such changes are increases in the
skill, experience, or health of workers; increases in the
availability or quality of resources such as physical
plant, equipment, and energy; successful research and
development efforts; and the breaking down of artifi­
cial barriers to the use of resources such as labor in
activities where productivity would be higher.

LABOR PRODUCTIVITY SINCE 1948
Numerous measures of labor productivity in the
U.S. economy can be obtained depending upon the
choice of alternative measures of aggregate output
and labor employment such as hours or the number
of workers. Charts 1 and 2 show two of these mea­
sures. Chart 1 shows real GNP divided by the quar­
terly average of civilian employment, while Chart 2
shows output per hour in the private business sector,
which excludes output originating in governmental
units, households, nonprofit organizations, and the rest
of the world. In both cases, the productivity measure
is shown from 1948 to the present.8
6The charts show the logarithm of productivity to indicate
trends in growth. Throughout this article, growth rates are



1979

Productivity growth in the
seventies, particularly since
1973, has been extremely
sluggish. From 1948 to early
1973, the trend rate of
growth of real GNP per
worker was 2.4 percent per
year; since then, the average
annual rate of growth has
been essentially zero. The
same pattern appears in
Chart 2 where the trend rate
of growth was 3.0 percent
per year until the first quar­
ter of 1973, while the recent
rate has been 0.5 percent. In
both cases, productivity de­
clined sharply during 197374 and, despite the relatively
rapid expansion of output
and employment since 1975,
the rate of productivity
growth has remained un­
usually slow.

The difference in growth rates in the two charts
primarily reflects a systematic decline in hours of
employment per worker. The average annual rate
of decrease in hours per worker from 1947 to the
present, which is 0.4 percent per year, accounts for
almost all of the difference in growth rates.7

FACTORS INFLUENCING
PRODUCTIVITY IN THE SEVENTIES
Many explanations have been given for the disap­
pointing performance of productivity in the seven­
ties. While it is not possible to empirically assess the
role of each factor, and while considerable disagree­
ment exists about their relative importance, a discus­
sion of them can provide some insight into the
problem.

The Cyclical View
Until recently, the consensus was that the produc­
tivity problem was due to the stage of the business
measured by changes in logarithms of variables to provide
symmetry and ease of calculation. This is a standard approx­
imation of rates of growth.
7This trend is found by regressing quarterly hours per worker
in the private business sector on a constant, the unemploy­
ment rate, and a time trend for the period I/1948-II/1979.
The unemployment rate is included to account for a sig­
nificant negative relationship between hours per worker and
unemployment.
Page 5

FEDERAL RESERVE BANK OF ST. LOUIS

cycle and was, therefore, temporary. Productivity
growth usually slows during high-employment periods
and recessions. During recoveries, however, produc­
tivity growth generally speeds up, restoring produc­
tivity to the previous trend growth path (see Charts
1 and 2). Unfortunately, such a recovery did not oc­
cur during the recent economic expansion.
The rationale for cyclical productivity movements
is that firms practice “labor hoarding.” During reces­
sion, firms are reluctant to lay off workers since they
want to avoid the relatively large rehiring costs in the
subsequent expansion. Similarly, output increases in
the early stage of expansions are readily achieved,
increasing output by increasing the utilization of labor
at a given employment level. Thus, cyclical variation
in output is larger than that in employment.
It has also been observed that hours of employment
per worker display a cyclical pattern. Output de­
clines during a downturn are achieved by reducing
hours per worker rather than by simply reducing the
number of employees. As a result, productivity meas­
ured relative to employment varies over the cycle
more than output per hour. A related point often
encountered in discussions of cyclical productivity is
that some portion of labor employment is of the over­
head variety, such as management; normally, as out­
put changes over the cycle, little change in overhead
labor employment occurs. As a result, productivity
varies procyclically.8
Another explanation of cyclical labor productivity
is simpler and, in most respects, compatible with the
“labor hoarding” view. This explanation is that the
use of capital relative to labor is procyclical — firms
use relatively more capital-intensive methods as the
economy expands and reduce capital usage relative
to labor during economic contractions. Consequently,
output changes relatively more than labor employ­
ment over the cycle, and labor productivity is
procyclical.9
8A discussion of these arguments may be found in many text­
books. For example, see Rudiger Dornbusch and Stanley
Fischer, Macroeconomics (New York: McGraw-Hill, Inc.,
1978), pp. 348-9. They cite productivity developments in
1974-75 as an illustration of such an argument.
9This explanation of cyclical productivity and evidence sup­
porting it is presented more fully in John A. Tatom, “The
‘Problem’ of Procyclical Real Wages and Productivity,” Jour­
nal of Political Economy (February 1980), forthcoming. This
explanation differs from the labor-hoarding argument pri­
marily because of its implications. Discussions of labor hoard­
ing often appear to imply that workers are allowed to idle
about awaiting the recovery and that, consequently, output
represents a departure from the normal production relation­
ship linking output to labor employment. Such an implica­
tion is unwarranted once the cyclical pattern of resource emPage 6



SEPTEMBER

1979

A recent example of cyclical changes in labor pro­
ductivity occurred prior to the 1970 recession. From
the fourth quarter of 1964 to the first quarter of
1969, the economy operated under high-employment
conditions, and real GNP per worker grew at an
average rate of 2.2 percent per year (roughly the
postwar average). During the next three quarters,
productivity declined at a 1.5 percent rate, and dur­
ing the four quarters of the subsequent recession,
this measure of productivity declined at a 0.5 per­
cent rate. In the ensuing expansion period, however,
productivity initially grew faster than average. From
the end of 1970 (the cyclical trough) to the first
quarter of 1973, real GNP per worker expanded at a
3.6 percent rate and employment was restored to
essentially a high-employment rate. Thus, an average
annual rate of growth of 1.9 percent was achieved
from the end of 1964 to early 1973, not much below
the rate of expansion prior to the recession.
Starting from high-employment conditions early in
1973, the cyclical explanation subsequently proved
inadequate. Productivity declined at a 2.1 percent
rate during the three quarters prior to the cyclical
peak in the fourth quarter of 1973. During the reces­
sion (IV/1973-I/1975), real GNP per worker declined
at a 3.3 percent rate. During the recovery, produc­
tivity rose faster than the prior trend rate, recover­
ing some of the cyclical loss, but the cyclical resur­
gence of labor productivity soon abated leaving the
productivity growth path well below its prior trend.
From the trough quarter (1/1975) to the second
quarter of 1979, real GNP per worker rose at only
a 1.4 percent rate, leaving the level of productivity
below that of the first quarter of 1973.

Capital Formation
Another major hypothesis is that the productivity
problem results from a slowing in the pace of capital
formation and/or inefficiencies in the allocation of
new capital expenditures.
Growth of the net stock of nonresidential plant and
equipment slowed after 1973, a decline that is espe­
cially pronounced when related to growth in the
labor force over this period.10 Growth of the highployment is taken into account. Just as increasing the use of
capital adds to output and labor productivity on a trend
basis, cyclical variations in the mix of resources employed
account for temporary movements in labor productivity over
the cycle. There are no unusual departures of productivity
from the basic empirical relationship between output and the
use of labor and capital resources in the U.S. economy.
10See John A. Tatom, “Energy Prices and Capital Formation:
1972-77,” this Review (May 1979), pp. 2-9. Denison “Ex­
planation of Declining Productivity Growth,” p. 3, shows

FEDERAL RESERVE BANK OF ST. LOUIS

employment net capital stock per worker has practi­
cally halted when compared with the trend rate of
growth of 2.9 percent per year from 1950 to mid-1972.
From mid-1972 to mid-1979, capital per worker grew
at a 0.6 percent rate, leaving the level of capital per
worker by mid-1979 about 17 percent lower than that
implied along the 1950-72 trend. Alternately, the net
capital stock was about $200 billion (1972 prices)
lower than would have existed if the previous trend
rate of growth had been achieved. A 17 percent loss
in capital per worker would reduce private business
sector output per hour by approximately 4.8 percent.
Distributing the 4.8 percent decline in output as­
sociated with these capital formation developments
over the seven years, however, yields a 0.7 percent
decline per year, while the growth rate of output per
hour slowed from 2.8 percent from I/1950-II/1972 to
1.0 percent from mid-1972 to mid-1979. A sizeable
estimate of the reduction in productivity growth due
to the slowing in capital formation has also been
made for the nonfarm business sector during the pe­
riod 1973-77.11 Capital formation has played a major
role in the stagnation of productivity growth in the
1970s. Considered alone, however, it does not ap­
pear to account fully for the extent of adverse
developments.
There are reasons to believe that estimates of the
role of slower capital formation may understate its ac­
tual impact. First, it is likely that the net stock of fixed
nonresidential capital estimated by the Bureau of Eco­
nomic Analysis does not adequately capture important
changes in the capital formation process in the last
decade.12 In particular, the sharp increase in the rel­
virtually no slowing in the contribution of capital per per­
son employed during 1973-76. The reason for this discrep­
ancy apparently is due to his method of grouping factors
which affect productivity and the cyclical differences be­
tween 1948 and 1973, on the one hand, and 1973 and 1976,
on the other. As Denison points out, in each of the two pe­
riods capital per person employed grew at close to the same
rate. Capital per hour of all persons employed slowed
sharply, however, due to cyclical differences which show up
elsewhere in Denison’s groupings. Corrected for cyclical
effects, the growth of capital per worker and capital per hour
show a sharp decline in capital accumulation.
11See J. R. Norsworthy and Michael J. Harper, “The Role of
Capital Formation in the Recent Productivity Slowdown,”
Bureau of Labor Statistics, U.S. Department of Labor Work­
ing Paper 87, (January 1979), Table IV. They also provide
evidence refuting the claim that labor productivity growth
slowed from 1965 to 1973 due to a slowing in capital stock
growth. This claim has been made by Peter K. Clark, “Cap­
ital Formation and the Recent Productivity Slowdown,” The
Journal of Finance (June 1978), pp. 965-75. Such evidence
may also be seen in Chart IV in John A. Tatom, “Energy
Prices and Capital Formation,” p. 7.
12This data is described by John C. Musgrave, “ Fixed Non­
residential Business and Residential Capital in the United
States, 1925-75,” Survey of Current Business (April 1976),
pp. 46-52, and Tatom, “ Energy Prices and Capital Forma­
tion,” p. 5.



SEPTEMBER

1979

ative price of energy resources rendered some of the
nation’s capital stock obsolete. To the extent that
estimated series do not capture these losses in normal
measures of “discards” and depreciation, the net capi­
tal stock measures lead to an overstatement of the
growth of the net capital stock in the seventies.13
A second difficulty with existing measures is that
since the late 1960s, some investment in business
plant and equipment has been made for pollution
abatement purposes. Since it is questionable to what
extent, if any, such capital formation is “produc­
tive” of measured output (as opposed to a cleaner
environment), the net capital stock measures may
overstate the growth of plant and equipment used
by workers to produce market output. Studies gen­
erally have indicated, however, that pollution abate­
ment investment has had little effect on the growth
of the capital stock or on labor productivity.14 Ed­
ward F. Denison has estimated the impact of pollu­
tion abatement capital on productivity growth to be
quite small; since he accounts for this reduction by
reducing the trend growth of total factor produc­
tivity, rather than by reducing the size of the cap­
ital stock, his results are discussed below.
There are many reasons for the slow pace of capi­
tal formation. Explanations usually emphasize the
extent of slack in the economy’s use of existing re­
sources, the diversion of funds from investment in
new plant and equipment to expenditures on health,
safety, clean air and water, and large federal budget
13The theory of capacity and capacity losses due to a higher
relative price for energy resources is discussed in Robert H.
Rasche and John A. Tatom, “The Effects of the New Energy
Regime ancl Economic Capacity, Production, and Prices,”
this Review (May 1977), pp. 2-12. This article indicates
that the bias that overstates capital stock or capacity meas­
ures is likely to understate capacity utilization rate measures.
Thus, utilized capital measures that use a product of a
utilization rate and a capital stock measure are unlikely to
be biased.
14For example, Robert H. Rasche and John A. Tatom, “Energy
Resources and Potential GNP,” this Review (June 1977),
pp. 10-24, found no significant differences between produc­
tivity estimates using capital stock adjusted and not ad­
justed for pollution abatement capital, p. 15. Similarly, the
growth rate of an adjusted capital stock series reported by
Peter K. Clark, “A New Estimate of Potential GNP,” U.S.
Congress, Joint Economic Committee, Hearings on the Eco­
nomic Report of the President, 95th Congress, 1st sess.,
January 19, 1977, pp. 39-54, is essentially the same from
1968-77, when the adjustments are present, as during the
period 1954-68. A calculation of the capital stock in manu­
facturing, with and without adjustment for pollution abate­
ment capital, by Lawrence R. Forest, Jr., “Capacity Utiliza­
tion: A Discussion of Concepts and Selected Analytical Ap­
plications,” Measures of Capacity Utilization: Problems and
Tasks, Staff Studies No. 105, Board of Governors of the
Federal Reserve System, (July 1979) pp. 57-135, shows
roughly a .3 percent decline in the annual rate of capital
formation due to the adjustment from 1968 to 1977. Such a
difference, one of the largest observed, has negligible effects
on output per hour.
Page 7

FEDERAL RESERVE BANK OF ST. LOUIS

deficits which have drained funds otherwise avail­
able for new capital projects.
Inflation is also an important source of reduced
business capital formation. First, higher rates of in­
flation tend to reduce the purchasing power of fixed
dollar depreciation expenses which results in lower
real cash returns in future periods. Also, the U.S. tax
system treats interest payments made by firms as in­
come to recipients and taxes it accordingly. When
interest rates rise to compensate investors for the
steady loss in purchasing power of original sums lent
to firms, these receipts — which are necessary to main­
tain the real wealth of investors — are erroneously
treated as income. Consequently, higher before-tax
real rates of return are required to compensate for
these taxes, further reducing incentives for firms to
raise investment funds. Finally, higher inflation rates
tend to increase uncertainty about the future inflation
rate. Consequently, investors and firms view the cash
flows expected from investment projects as riskier
and are more reluctant to invest.15
This analysis reverses the traditional view of the
relationship between productivity growth and infla­
tion. Until the seventies, the link was considered to
run from productivity to inflation, instead of from
inflation, via capital formation effects, to produc­
tivity growth. According to the earlier view, inflation
is largely the result of labor costs growing faster than
productivity. Consequently, inflation accelerates when
productivity growth slows. In the long run, however,
productivity growth determines the growth of wages
relative to prices, but the rate of advance of prices
including prices of labor services, is largely deter­
mined by money growth. Thus, monetary policy is an
important influence not only on the rate of increase
of prices (including wages) but also, through the
effect higher inflation rates have on capital formation
and trend productivity growth, on the relative rate of
advance of wages compared with prices.

SEPTEMBER

1979

intensive than the production of other products, a
rise in energy prices raises the costs of capital goods
relative to the future prices of the products that
these capital goods eventually will produce. Taken
together, these forces create incentives to reduce
energy, plant, and equipment usage per unit of out­
put, by employing less energy per unit of capital and
more labor-intensive methods of production. This ef­
fect has been shown to be quite substantial in tempo­
rarily reducing the growth of plant and equipment.16

The Rate of Technological Change
Another important factor influencing productivity is
the rate of technological progress, which conceptually
represents improvements in total factor productivity
not captured in measures of factors of production. For
example, improvements in the quality of productive
plant and equipment are not necessarily captured in
standard measures of the capital stock. Also, improve­
ments in organization or technology (which repre­
sent additions to the nation’s capital stock) are not
always embodied in plant and equipment measures.
The contribution of these factors, as well as qualita­
tive changes in other physical resources, often are
assessed by including a time trend in productivity
studies to capture the secular rate of productivity
change not measured by growth in the use of phys­
ical resources.
Clark estimates that the trend rate of growth of
total factor productivity in the private business sec­
tor was 1.9 percent per year from 1947-66, but slowed
to a 1.4 percent rate after 1966. He attributes this
reduction to a slowing in the rate at which resources
have shifted from agriculture to nonfarm business.17
Rasche and Tatom find that the productivity trend
rate was 1.6 percent in the private business sector
from 1949-75; they provide some evidence supporting
a smaller trend slowdown after 1966.18

Finally, the sharp rise in the relative price of energy
since 1973 has been a major factor in the reduced
pace of capital formation. When the price of energy
rises relatively more than the price of business out­
put, firms find that the real net cash flows expected
from plant and equipment are smaller because of
higher operating costs. Moreover, to the extent that the
production of capital goods is relatively more energy-

An important factor that influences the trend rate
of productivity growth is the increase in the stock
of knowledge accumulated through research and de­
velopment outlays.19 While it is difficult to assess its

15Burton G. Malkiel, “Productivity — the Problem Behind the
Headlines,” Harvard Business Review (May-June 1979) pp.
81-91, presents evidence of higher risk premiums built into
stock and bond returns during the mid-seventies, as well as
a discussion of some of the other factors inhibiting capital
formation and productivity growth.

17See Clark, “A New Estimate of Potential GNP.”

8
Digitized for Page
FRASER


16See Tatom, “Energy Prices and Capital Formation,” and
Edward A. Hudson and Dale W. Jorgenson, “Energy Prices
and the U.S. Economy, 1972-1976,” Natural Resources Jour­
nal (October 1978), pp. 877-97.

18See Rasche and Tatom, “ Energy Resources and Potential
GNP,” pp. 16, 19.
19John W. Kendrick, “Productivity Trends and the Recent
Slowdown: Historical Perspective, Causal Factors, and Pol-

SEPTEMBER

FEDERAL RESERVE BANK OF ST. LOUIS

R ese a rch a n d D e v e lo p m e n t O u tla y s
Ratio Scale
B illio n s of 1972 Dollars

lio Scale
ions of 1972 Dollars

1955 56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

75

76

77

78 1979

1979

increased business costs associated with
unusually high rates of dishonesty and
crime.20 The first two of these factors,
under the general category of increased
government regulation, have been cited
by many analysts as a significant force in
reducing American productivity.
Denison contends that these factors
divert real resources from the production
of measured output. He estimates the ef­
fect of these forces, however, by assess­
ing their impact on output rather than
on measured inputs. Furthermore, he
finds that over the period 1969-75 these
factors reduced productivity growth by
an average of .26 percent per year, with
pollution abatement accounting for .15
percentage points; health and safety, .07
points; and dishonesty and crime, .05
points. The effect of these factors is quite
small when compared to the extent of
recent productivity developments.

S o u rce : U .S . N a tio n a l S cie n ce Foundation
Latest d a ta p lo tted: 1978

quantitative impact on recent productivity develop­
ments, it is doubtless that a major decline in the con­
tribution of such outlays to productivity has occurred
in the seventies. Chart 3 shows estimates of research
and development outlays (1972 prices) from 1955-78.
From 1955-68, the average annual rate of growth of
such expenditures was 7.6 percent. From 1969 through
1976, such expenditures actually were lower in real
terms than in 1968. While real research and develop­
ment outlays rose at a 4.2 percent rate from 1975-78,
the record of the last 10 years is one of substantial
reduction in research and development efforts, com­
pared with 1955-68.
Denison has examined three other factors that have
adversely affected the trend rate of growth of output
per unit of input. The three factors are: increased
costs of pollution abatement since 1967, increased
costs for employee safety and health since 1968, and
icy Options,” Contemporary Economic Problems 1979, pp.
17-69, attaches primary importance to this factor in account­
ing for the slowdown. One of his estimates is that the con­
tribution of advancing knowledge due to formal and informal
research and development inventiveness, and diffusion of
new technology and capital goods contributed 1.4 percent
to annual productivity growth in 1948-66, 1.1 percent in
1966-73, and 0.8 percent in 1973-78. Denison and others
have shown that these estimates are probably seriously
biased upwards. See Denison, “Explanations of Declining
Productivity Growth,” pp. 6-8.



Labor Resources
In the past decade, the age and sex composition of
the labor force has changed. Many analysts have
argued that the labor force has become less exper­
ienced on average, as women and young people have
become a larger proportion of the nation’s labor force,
and that this development should have a temporary
influence on productivity.21 As Chart 4 shows, how­
ever, growth in the proportion of women in the labor
force has not accelerated in the seventies and, since
late 1973, the percentage of young people in the labor
force has flattened out. If these trends have had any
effect on productivity growth, they should have been
positive. As the participation rate of women levels off
and as younger workers mature, the composition of
20See Edward F. Denison, “Effects of Selected Changes in the
Institutional and Human Environment Upon Output Per
Unit of Input,” Survey of Current Business (January 1978),
pp. 21-44, “The Puzzling Drop in Productivity,” Challenge
( May-June 1979), pp. 60-62, and “Where Has Productivity
Gone,’ in William Fellner, Project Director, Contemporary
Economic Problems 1979, pp. 71-77.
21For example, see George Perry, “ Potential Output and Pro­
ductivity," Brookings Papers on Economic Activity ( 1:1977),
pp. 11-47, and William Fellner, “The Declining Growth of
American Productivity: an Introductory Note,” Contempo­
rary Economic Problems 1979, pp. 3-12.
Page 9

FEDERAL RESERVE BANK OF ST. LOUIS

the labor force will be­
come relatively more ex­
perienced.22 Consequently,
changes in the age structure
toward older, more experi­
enced workers are expected
to have a positive effect on
productivity in the next
decade.
Another important factor
influencing the quality of la­
bor resources and productiv­
ity is the health and educa­
tion of workers. In the past
decade, there is no evidence
that the trends of rising edu­
cational levels and improv­
ing health of workers have
been reversed, or that the
contribution of such influ­
ences to productivity have
lessened.23

SEPTEMBER

1979

Chart 4

W omen and Youth as a Percent of the Labor Force

12 Ratio of the civilian labor force age 16-24 to total civilian labor force.

Energy Resources
Energy price developments have provided a major
shock to the world economy in the seventies and have
affected productivity, output, prices, and growth. The
extent of the influence on productivity, however, re­
mains a matter of controversy.
Rasche and Tatom have argued that the rise in the
price of energy resources relative to that of business
output reduced the economic capacity of the busi­
ness sector, raised prices of output, and reduced pro­
ductivity of existing capital and labor resources.24
These effects stem from efforts to economize on
energy in production by substituting the use of other
resources. For example, they estimate that the increase
in energy costs in 1974 alone reduced labor and capi­
tal productivity by about 4 percent. For the 1973-78
22It is difficult to assess the importance of the composition of
the labor force on productivity. For example, attempts to
assess the role of the age structure of the labor force on
output by including variables to control for it in a pro­
duction function framework are often unsuccessful in that
such variables are not statistically significant. See Rasche
and Tatom, “Energy Resources and Potential GNP,” p. 15.
23See, for example, Fellner’s comments on education in “The
Declining Growth of American Productivity,” p. 8.
24See Rasche and Tatom, “The Effects of the New Energy
Regime on Economic Capacity, Production, and Prices,”
“Energy, Resources and Potential GNP,” and “Potential Out­
put and Its Growth Rate — The Dominance of Higher En­
ergy Costs in the 1970s,” U.S. Productive Capacity: Estimat­
ing the Utilization Gap (Washington University: Center for
the Study of American Business, December 1977), pp. 67106.

Page 10


period, higher energy prices reduced the growth rate
of labor productivity by 1.3 percent per year, irrespec­
tive of the indirect effects of energy costs on produc­
tivity due to energy-induced reductions in capital
formation. By lowering productivity, higher energy
costs led to a decline in the demand for other re­
sources. This decline, in turn, was reflected in a fall
in real wages and a reduction in firms’ desired capitallabor ratios. The observed decline in the capital-labor
ratio since 1972 can be explained almost entirely by
energy price developments alone.25
Other analysts have argued that the effect of in­
creased energy prices on the economy has been much
smaller. For example, Fellner attributes only .3 per­
cent of the 1.9 percent per year decline in trend pro­
ductivity growth from the 1948-73 period to the 197377 period to the shift of production away from energyusing methods.26 Denison points out that the timing
25See Tatom, “Energy Prices and Capital Formation,” and
Hudson and Jorgenson, “ Energy Prices and the U.S. Econ­
omy.” They have produced similar results for the impact of
higher energy prices on capital formation and, consequently
on productivity. Others have provided support for relatively
large short-run effects of changing supplies of energy as
reflected in relative prices of energy. See Clark, “A New
Measure of Potential Output,” and Jacques R. Artus, “ Meas­
ures of Potential Output in Manufacturing for Eight Indus­
trial Countries, 1955-78,” International Monetary Funds Staff
Papers (March 1977), pp. 1-35.
26See Fellner, “The Declining Growth of American Produc­
tivity,” p. 6.

SEPTEMBER

FEDERAL RESERVE BANK OF ST. LOUIS

C h a rt 5

Industrial Sector Ratio of Energy to Output*

S o u rc e :
♦ R a tio o f e n e r g y to r e a l in d u s t ria l G N P .
a g r ic u lt u r e , a n d m in in g .
L a te s t d a t a p lo tte d : 1 9 7 7

U .S . D e p a r tm e n t o f E n e r g y a n d U .S . D e p a rtm e n t o f C o m m e rc e

used per unit of output
would have had to occur.28
Likewise, both have noted
that the reductions in en­
ergy use that followed the
sharp rise in energy prices
in 1973-74 were quite small,
although both also have ac­
knowledged the difficulty of
obtaining meaningful data
on energy used by business.
Perry claims that energy
used per unit of output in
the business sector declined
10.2 percent from 1973 to
1976, while the trend in such
reductions from the past
alone would have generated
a 5.3 to 7.3 percent reduc­
tion in energy usage. Thus,
he claims that energy price
developments reduced en­
ergy use by only 2.9 to 4.9
percent over this period.
Similarly, DeLeeuw, citing
ratios of total and industrial
energy consumption to total
and industrial real GNP
which show a downward
trend from 1970-73, argues
that this negative trend did
not accelerate after 1973.

Th e in d u s t ria l s e c t o r is co m p o s e d o f co n stru ctio n , m a n u fa c tu r in g ,

of energy price developments coincides with that of
the adverse productivity developments. Nevertheless,
he insists that a more reasonable estimate of the effect
of higher energy prices on productivity is 0.2 percent
for the period 1973-76, the upper bound of the size
of the effect as discussed by Perry.27
Both Perry and DeLeeuw have argued that for
productivity to have been adversely affected by energy
price developments, a significant decline in energy
27See Denison, “Where Has Productivity Gone?” p. 76, “The
Puzzling Drop in Productivity,” p. 62, and “Explanations
of Declining Productivity Growth,” pp. 15-18 and George
L. Perry, “Potential Output: Recent Issues and Present
Trends,’ in U.S. Productive Capacity: Estimating the Util­
ization Gap, pp. 6-12.



1979

Chart 5 shows the ratio of industrial energy use ( E )
to “industrial” real GNP, where the latter is the real
GNP originating in manufacturing, construction, agri­
culture, and mining sectors for the period 1960-77.29
This ratio declined after 1970, as DeLeeuw and Perry
point out. There is no apparent trend in this ratio,
however, over the longer period 1960-72. A simple
regression of the logarithm (In) of this ratio over the
period 1960-72 fails to reveal a significant negative
time trend when the effects of changes in the rela28See Frank DeLeeuw, “ Comments on Rasche and Tatom,” in
U.S. Productive Capacity: Estimating the Utilization Gap,
pp. 137-45.
29The energy data is taken from U.S. Department of Energy,
Federal Energy Data System (FEDS) Statistical Summary.
This data series is available from 1960-77.
Page 11

FEDERAL RESERVE BANK OF ST. LOUIS

SEPTEMBER

tive price of energy and eye-1
iical variations in the ratio
are taken into account.
The estimated equation,
together with one that omits
the time trend, is shown in
Table 1. The price of energy,
Pe, is measured using the
producer price index for
fuel, related products, and
power deflated by the im­
plicit price deflator for pri­
vate business sector output.
The cyclical adjustment var­
iable, UN, is the difference
between the unemployment
rate of the civilian labor
force and a measure of
the
unemployment
rate
under
high-employment
conditions.30

Output Per Hour in Manufacturing

1948 49

SO

51

52

53

54

55

56

T a b le 1

The Industrial Energy Ratio

In (E /R G N P )

=

I n (E / R G N P )

=

1960- 72 )

7 .6 3 4 1 .2 0 7 In P6 +
( 3 .4 0 )
( - 2 .7 0 )

R2 = 0 .7 2
S .E . = 0 .0 2 6
5 .7 0 1
( 6 .3 4 )

R2 — 0 .6 9
S .E . = 0 .0 2 5

D .W . =

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72 73
74 75 76 77 78 1979
Source: U.S. Bureau of Labor Statistics

significant positive coefficient on the excess unemploy­
ment rate suggests that the failure of the energy ratio
to decline more substantially after 1973 is partly due
to the unusually high levels of unemployment in
1975-77. Apparently, energy usage contains a signifi­
cant overhead component that is insensitive to cyclical
variation in output. This contrasts sharply with Perry’s
negative cyclical coefficient.31 Finally, since the time
trend is insignificant, assessing energy reductions rela­
tive to a negative trend understates the extent of
energy reductions after 1973.32

0 .0 4 3 U N — 0 .0 0 5 t
( 4 .2 3 )
( - 0 .9 4 )
1 .5 0

— 0 .8 2 5 In P e +
(- 4 .4 1 )

0 .0 3 9 UN
( 4 .2 2 )

D .W . =

1.31

30The full-employment unemployment rate is that prepared by
Peter K. Clark, “ Potential Output in the United States 19481980,” U.S. Productive Capacity, Perry uses the ratio of real
GNP to his estimate of potential real GNP which is highly
correlated with such a measure of excessive unemployment.
It should be noted that when the equations in Table 1 are
estimated with the Cochrane-Orcutt technique, the auto­
correlation coefficient is not significant. Thus, autocorrelation
can be rejected.
Page 12



57

Latest data plotted: 2nd quarter

The most notable features of these estimates are
the size and significance of the relative price coeffi­
cient which indicate that the energy ratio is con­
siderably more sensitive to prices than either Perry
or DeLeeuw believe. In addition, the statistically

(

1979

31The cyclical sensitivity of the energy ratio is essentially an
empirical question since one could argue that over the cycle
some firms, such as utilities and metal producers, are able
to meet temporarily high demand using less efficient (espe­
cially with regard to energy use) plant and/or equipment,
and this capital, in turn, is the first to be laid off during
recessionary sales periods. If this effect dominated the use
of overhead energy, the energy ratio would be reduced by
slack in the economy. On the other hand, the energy pro­
ducing sector is the most energy intensive production sector.
Given the rise in the relative price of their products due to
reductions in the availability of other energy sources, some
firms would temporarily have an incentive to expand the
use of plant and equipment that would otherwise have been
obsolete. This effect would raise the energy ratio during the
recent slack period.
32The White House, Fact Sheet on the President’s Program,
reprinted in Daily Report for Executives, (April 5, 1979),
supplement p. 4, points out that industrial energy use has
dropped by 6 percent while output increased 12 percent
since 1973. This represents a drop in the ratio of about 18
percent.

FEDERAL RESERVE BANK OF ST. LOUIS

Estimates such as those in Table 1 should be viewed
skeptically, however. First, as Perry and DeLeeuw
point out, the data are problematical.33 Second, the
data cover only direct energy purchases and not the
energy component of intermediate products purchased
from other industries including transportation. Third,
the energy measure is in Btu equivalents rather than
an index of the quantity of energy which is compati­
ble with the producer price index for energy.

SEPTEMBER

1979

well. In fact, the evidence from the manufacturing
sector supports this explanation.
Productivity growth in the manufacturing sector has
slowed relative to its past trend (see Chart 6). From
1948 to 1973, manufacturing sector output grew at an
average annual rate of 3.8 percent, while hours grew
at a 1.0 percent rate. From 1973 to 1978, manufac­
turing output growth slowed to a 1.7 percent rate
and hours growth declined at a 0.1 percent rate. Con­
sequently, output per hour in manufacturing slowed
from a 2.8 percent rate of growth to a 1.6 percent
rate. Comparable figures for the private business sec­
tor show a decline in growth of output per hour from
a 2.9 percent to a 1.0 percent rate. While the decline
in the growth rate in manufacturing is smaller, this

Most important, however, the size of the price ef­
fects on the energy-output ratio is unimportant to
the hypothesis that relates energy price developments
to the sharp decline in productivity in 1974 and its
subsequent slow growth. The Rasche-Tatom estimates
of the effect of the relative price of energy resources
on productivity apparently
are not biased by implicit
T a b le 2
assumptions about energy
demand. If the assumptions
Production Functions for M anufacturing
introduced such biases, they
and The Private Business Sector
would be detected in other
( 1948 - 1 9 7 6 )
coefficients of the model esti­
- 0 .1 2 8 I n P«m + 0 .0 2 1 1
in x„
1 .4 2 6 + 0 .5 2 4 I n h „ + 0 .4 7 6 I n k „
mated. In this regard, it is
(4 .4 5 )
( 4 .1 0 )
( 2 .4 8 )
(2 .2 5 )
(- 2 .1 7 )
curious to note that, if en­
ergy use is less price sensi­
D .W . = 1 .5 9
R - 0 .9 3
S .E .
= 0.021
p = 0 .8 3
tive than the approximation
used by Rasche and Tatom
+ 0 .0 1 8t
I n X = 1 .5 4 5 + 0 .7 1 5 I n h + 0 .2 8 5 I n k — 0 .1 0 9 I n
implies, their estimate of the
( 1 2 .3 4 )
( 1 3 .9 5 )
( 5 .5 5 )
( - 5 .1 6 )
( 1 0 .4 7 )
energy and energy price
elasticity of output would be
D .W . = 1 .8 6
R = 0 .9 8
S .E . = 0 .0 0 9
p = 0 .5 9
too small, not too large.3*
Thus, the claim of a low
does not imply that the energy price effect observed
price elasticity of demand for energy made by Perry,
for the private business sector was smaller or absent
DeLeeuw, and Denison would reinforce the Raschein manufacturing.
Tatom conclusions if it were correct.
In a related fashion, some have argued that produc­
tivity developments in the manufacturing sector have
not been unusual.35 If increased energy prices are an
important causal factor in the productivity decline,
they should produce a slowing in manufacturing as
33For example, the regressions end in 1972 because the indus­
trial sector energy use data in the U.S. Department of Energy,
Monthly Energy Review, reported since 1973, show a lower
level of energy use in 1973. The more recent data also show
that energy use declines much more rapidly from 1973-78
than in the Federal Energy Data System estimates.
34See Rasche and Tatom, “Energy Resources and Potential
GNP,” Appendix II, p. 23. Denison, “Explanations of De­
clining Productivity Growth,” pp. 16-17, criticizes the price
sensitivity assumption while arguing that the energy price
elasticity of output must be smaller than Rasche and Tatom
estimate.
35See, for example, “Behind the Slump in Productivity
Growth,” Morgan Guaranty Survey (November 1978), pp.
7-11.



An estimate of the Rasche-Tatom production func­
tion for manufacturing shows that the energy effect
on manufacturing is essentially the same as that for
the private business sector.36 Table 2 shows estimates
of PBS output (X ) and manufacturing output (Xm)
for the period 1948-76. In each case, output is a func­
tion of hours employed (h), the product of the sec­
tor’s lagged net capital stock and the Federal Reserve
Board capacity utilization rate (k), and the relative
price of energy in each sector (Pe), which is found
by deflating the producer price index for fuel and
related products and power by the implicit price de­
flator for output in the respective sectors. There is
little difference between the size of the effect of the
relative price of energy on the private business sector
3eThe theory and deviation of the equations estimated are
discussed more fully by Rasche and Tatom, “Energy Re­
sources and Potential GNP.”
Page 13

FEDERAL RESERVE BANK OF ST. LOUIS

or on manufacturing output. Furthermore, the effect
is statistically significant at conventional levels in each
case.37 The smaller decline in productivity growth in
manufacturing apparently results from the fact that,
while the growth of the net capital stock in manu­
facturing slowed after 1973, it grew faster than hours
employed. Growth in the capital stock per hour
of all persons employed slowed for the private
business sector during 1973-78, but accelerated in
manufacturing.38
The rise in the relative price of energy was largely
due to OPEC actions since 1972; the relative price of
energy rose by a similar amount on a worldwide scale,
except to the extent that various nations may have
offset the increases by lowering their specific taxes
on energy products. Consequently, if the energy priceproductivity hypothesis is correct, one would expect
to observe adverse productivity developments and
slower capital accumulation in other nations.
Table 3 shows the trend growth rate for 11 indus­
trial countries from 1960-73 and the average annual
growth rate for each country from 1973-78, except
for the Netherlands and Belgium where growth rates
are computed through 1977. In each country, produc­
tivity growth declined in the later period. In half the
foreign countries, the reduction in the five-year aver­
age annual rate was more than the standard error of
the prior trend-adjusted annual growth rate ( Canada,
Sweden, United Kingdom, Italy, and Japan). In Italy
and Sweden, the reduction was more than twice the
standard error of the prior annual grow th rate. The
pattern of the reduction also conforms to the U.S.
experience. In every country but West Germany, pro-

SEPTEMBER

1979

T a b le 3

Productivity G ro w th Rates for 1 1 Industrial N ations
(O u tp u t p e r h o u r)

A n n u a l G ro w th
Tren d
1 9 6 0 -73 *

A v e ra g e A n n u a l
G ro w th Rate
1 97 3 -78

D ifference

U n ite d S tate s

2 .8 %
( 2.8 ) %

1 .7 %

1 .1 %

Belgium

7 .0
( 3 .5 )

6 .4 * *

0 .6

2 .5

1 .9

4 .6

2 .6

4 .8 * *

2 .8

1 .5

5 .2

0 .2

3 .8

Canada

4 .4
( 1 .2 )

D enm ark

7 .2
( 2.8 )

N e th e rla n d s

Sw e d e n

7 .6
( 3 .2 )
6 .7

( 1. 2 )
U n ited Kingdom

4 .0
( 2.0 )

Fran ce

5 .9
( 1 .5 )

4 .7

1 .2

W e st G e rm a n y

5 .4
( 1 .3 )

5 .0

0 .4

It a ly

6 .6
( 1 .3 )

2 .6

4 .0

Jap an

9 .9
( 4 .0 )

3 .5

6 .4

* ( Figures in parentheses are standard error o f annual growth rate
after adjustment for trend.)

3"The estimate of the energy elasticity of output from the equa­
tions in Table 2 is 11.4 percent in the manufacturing sector
and 9.9 percent for the private business sector. Denison’s
claim that this elasticity must be larger in manufacturing
appears to be correct. The difference is not statistically
significant, however, since the standard error for the manu­
facturing elasticity is 5.2 percent, while that for the private
business sector is 1.9 percent. See Denison, “Explanations
of Declining Productivity Growth,” pp. 16-17. The coeffi­
cient on hours in the manufacturing sector is low, given
that the share of labor cost for the manufacturing sector
during the sample period averaged 69.9 percent. The implied
hours elasticity of output in Table 3 for manufacturing is
only 46.5 percent, but given its standard error of 18.7 per­
cent, the hypothesis that the hours elasticity and labor
share are equal cannot be rejected at the 95 percent confi­
dence level. When the equations in Table 3 are estimated
with the output elasticity of hours constrained to equal the
average shares of labor cost during the sample period, the
estimate of the energy elasticity of output is 9.9 percent in
both sectors and significant. Moreover, an F-test of this con­
straint fails to reject it at the 5 percent significance level.
38When a second time trend is included in the equations in
Table 2 to allow for the slowing in the rate of technological
change after 1966 discussed earlier, it is not statistically
significant at the 20 percent significance level in either case.
Digitized forPage
FRASER
14


<=*Growth rate 1973-77. Data for 1978 are unavailable at this time.
SOURCE: U.S. Department of Labor.

ductivity growth was more than one standard error
below the prior trend during 1974 or 1975. In 8 of
the 11 countries, productivity growth in 1974 or 1975
declined by more than twice the standard error of the
1960-73 trend-adjusted growth rate (the exceptions
are West Germany, the Netherlands, and Denmark).39
39The worldwide decline in productivity growth has also been
noted recently in “ Whatever Happened to Productivity?”
The Economist (August 25-31, 1979), pp. 60-61. As in the
case of manufacturing above, it is possible that the labor
productivity decline has been partially avoided in countries
such as West Germany and Belgium by institutional arrange­
ments such as “indexing” which keep real wages from fall­
ing and lead to faster capital growth relative to employment.
Such growth is manifested primarily by negative or slow em­
ployment growth.

FEDERAL RESERVE BANK OF ST. LOUIS

Finally, the rise in the relative price of energy led
to incentives to reduce the desired capital-labor ratio
in production through a reduced pace of capital for­
mation. Again, this would be expected to occur world­
wide. A recent report by the Bank for International
Settlements shows that for the United States and five
of the foreign countries in Table 3, real nonresidential
fixed investment slowed dramatically after 1973 com­
pared with a 1955-73 trend. In the five foreign countries,
such investment was virtually flat from 1973 to 1978,
compared with annual trend rates prior to 1973 of
15.5 percent in Japan, 5.3 percent in Italy, 6.5 percent
in Germany, 7.9 percent in France, and 5.8 percent
in the United Kingdom.40 Capital formation patterns
are similar in the other five foreign nations.41 In Bel­
gium, real nonresidential capital formation slowed
from a 5.2 percent average annual rate of growth in
1965-73 to a 0.3 percent rate in 1973-76. Comparable
slowings occurred in Denmark, (4.7 percent to -1.0
percent) and the Netherlands (4.5 percent to -2.3
percent). Data available through 1978 indicate that
real nonresidential gross capital formation slowed in
Sweden from a 3.6 percent rate in 1965-73 to a -1.3
percent rate in 1973-78. In Canada the slowing
was smaller: from a 4.6 percent rate in 1965-73 to a
3.1 percent rate in 1973-78. Thus, two of the major
implications of the energy price rise in the seventies
appear to be borne out in other nations as well.

SUMMARY AND CONCLUSION
Productivity growth declined substantially during
the seventies. Many analysts, regarding the decline
as a cyclical phenomenon which reflected unusually
high levels of unemployment, did not recognize the
seriousness of the problem. In recent months, how­
ever, it has become more widely recognized that the
productivity problem of the seventies is not a tempo­
rary cyclical aberration. Nonetheless, the source of
the productivity problem remains controversial.
Economic theory suggests several sources of the
problem. With the possible exception of energy
price developments during the decade, however,
40See Bank for International Settlements, Forty-Ninth Annual
Report (Basle, June 1979), p. 28. The United States shows
the most favorable growth of real nonresidential fixed in­
vestment relative to the prior trend when compared with
the five other nations. I am indebted to Allan H. Meltzer
for calling my attention to this dramatic evidence.
41The data used for these countries is fixed capital formation
less residential construction, both in 1970 prices, from the
OECD, National Accounts of OECD Countries, Vol. II,
1976. For the 1973-78 period, the data (in 1975 prices) for
Sweden and Canada is from the OECD, Quarterly National
Accounts Bulletin, 1978/IV and 1979/1 issues.



SEPTEMBER

1979

no single factor appears to account for the entire
problem. While the changing composition of the labor
force has been erroneously tagged as the main factor
adversely affecting productivity in the seventies, the
relatively slow pace of capital formation, including
research and development capital, has quietly played
an important role in productivity’s decline. In addi­
tion, the diversion of capital formation from marketoriented production to government-regulated goals
(such as clean air, occupational health and safety)
has been a contributing factor.
The reasons for the slowing of capital formation
are as diverse as those that account for productivity
developments. Both the increased relative cost of pur­
chasing new plant and equipment and the higher
relative cost of operating capital account for a large
part of the slowing. These, in turn, are largely due to
energy price developments. Inflation and uncertainty
about future inflation have also provided strong
disincentives for business investment. Much of the
disincentive effect of inflation arises through the
tax system, but high inflation rates also increase the
variability of inflation, which adds to the riskiness of
business ventures. Coupled with increased risk aris­
ing from growing government influence in the market­
place, risk .premiums built into the costs of funds
have escalated, further reducing capital formation
incentives.
The influence of some of the factors affecting pro­
ductivity in the seventies may be reversed in the
eighties. For example, the sharp acceleration of govern­
ment regulation in the seventies, to the extent it rep­
resented substantial “start-up” requirements of new
programs, may slow in the coming decade. The labor
force will tend to become more experienced in the
eighties as the proportion of young workers declines
and participation rates of women level off. Barring
further disruptions, large increases in the relative
price of energy are less likely since pricing decisions
of OPEC appear to be based upon major changes
in market structure such as the formation of the car­
tel or production policy changes in member countries.
In addition, such increases will become increasingly
limited by the competitive cost of alternative sources
of energy. In spite of such favorable possibilities,
however, other adverse factors influencing both capi­
tal formation and productivity growth remain. More­
over, the substantial losses of productivity in the
seventies are not likely to be recouped without con­
siderable effort.
The list of possible policy options to restore produc­
tivity growth is quite long. Essentially it includes any
Page 15

FEDERAL RESERVE BANK OF ST. LOUIS

efforts that increase incentives to improve labor skills,
increase the quantity and quality of plant, equipment,
research and development, and increase incentives to
produce and utilize energy resources efficiently. Most
of the proposals involve cutting various taxes or re­
moving regulatory restraints to stimulate the supply
of resources and output in the economy.
Monetary policy can also be useful in the promotion
of productivity growth. Inflation and its variability re­

Digitized forPage
FRASER
16


SEPTEMBER

1979

tard the expected returns from investment and
increase risk. Since inflation depends principally upon
the rate of growth of the money supply, a policy
which obtains lower and more stable growth rates of
the money stock would enhance productivity growth.
The most practical means for removing variability of
monetary growth and achieving a lower targeted
rate of growth is to conduct policy to achieve
targets for the monetary base rather than targets
for interest rates.

Repurchase Agreements
NORMAN N. BOWSHER

I

N recent years, an increasing number of major fi­
nancial developments have occurred, including such
innovations as savings accounts subject to automatic
transfer, NOW accounts, and money market mutual
funds. Another significant financial development has
been the rapid growth in repurchase agreements
(RPs). RPs, or “repos” as they are frequently called,
have existed for decades, but have risen substantially
only in the last few years.
In view of the rapidly expanding role of RPs and
the general lack of understanding of them by those
outside the financial community, this article discusses
RPs and their principal uses and provides a perspec­
tive on their recent growth. Further, this article ex­
plores the implications and potential importance of
RPs for both financial markets and stabilization
policy.

and lending short-term funds. RPs frequently are
made for one business day (overnight), although
longer maturities are not uncommon.
An illustration of a “typical” RP transaction is help­
ful in understanding this financial instrument. Sup­
pose that’ the treasurer of a large corporation calcu­
lates the firm’s cash position for the day and
determines that the firm has funds that are not re­
quired immediately, but will likely be needed to meet
expected expenditures in a day or two. The treasurer,
wishing to earn interest on these “excess” funds for a
day, arranges to purchase a government security from
a commercial bank with an accompanying agreement
that the bank will repurchase the security on the
following day. This type of transaction is illustrated
in the following accounting entries.
Bank

C o rp o ra te Custom er

B e fo re RP

$1 M illio n
D eposit

$1 M illio n
D eposit

A repurchase agreement, as the term is used in the
financial markets, is an acquisition of funds through
the sale of securities, with a simultaneous agreement
by the seller to repurchase them at a later date.1
Basically they are a secured means of borrowing

C re a tio n
of RP

—$1 M illio n
D epo sit

- $ 1 M illio n
D epo sit

- b $ l M illio n
RP
B o rro w in g

+ $ 1 M illio n
C o lla te r a l­
ize d Loan
(R P )

JFor a detailed discussion of RPs, see Charles Lucas, Marcos
Jones, and Thom Thurston, “ Federal Funds and Repurchase
Agreements,” Quarterly Review, Federal Reserve Bank of
New York (Summer 1977), pp. 33-48, and Thomas D. Simp­
son, “The Market for Federal Funds and Repurchase Agree­
ments,” Staff Studies 106, Board of Governors of the Federal
Reserve System (July 1979).

C o m p letio n
o f RP
A g re em en t

+ $1 M illio n
D epo sit

-|-$1 M illio n
D epo sit

—$1 M illio n
RP
B o rro w in g

—$1 M illio n
Lo an (R P )

Description of the RP Market




Page 17

SEPTEMBER

FEDERAL RESERVE BANK OF ST. LOUIS

At times the corporate treasurer may decide that
excess funds will be available for a longer period. For
example, if the corporation has just sold long-term
bonds but will not make the capital expenditures for,
say, 30 days, an RP can be arranged for this specific
period. This would be beneficial because the transac­
tion costs of a term contract are less than those for a
series of daily contracts.
The advantages of RP transactions are numerous.
Through the RP mechanism, corporations and other
holders of large cash balances can earn a secured
market rate of return on these balances until they
actually are used for payments. At the same time,
banks find these RPs a useful source of short-term
funds. Interest rate ceilings do not apply to typical
RP transactions, and member banks are not required
to hold reserves against funds obtained through RPs
as long as the securities involved are obligations of
the United States government or federal agencies.2
In addition, the parties to the transaction have greater
flexibility in setting maturities than they do with cer­
tificates of deposit (CDs), which must have at least
a 30-day maturity.

1979

on or changing market prices of the government se­
curities bought and sold. The role of government se­
curities is only to provide collateral for the lender.
The interest rate on RPs usually approximates the
federal funds rate, but frequently is slightly lower
because RPs are collateralized borrowings whereas
federal funds are not.
Most RP transactions are in amounts of $1 million
or more, but a few are smaller than $100,000. De­
spite the large sums involved, there is little financial
risk in RP transactions since securities issued or guar­
anteed by the federal government are used for
collateral, since most transactions occur between in­
stitutions with high credit standings, and since repur­
chase is usually scheduled for only a short period after
sale.
There is no central physical marketplace in which
RPs are arranged. Transactions are negotiated by tel­
ephone, either on a direct basis between parties sup­
plying and acquiring funds or through a small group
of market specialists (U.S. government securities
dealers). Most large banks and business firms employ
traders who maintain telephone contact with potential
suppliers (or borrowers) of funds, making offers to
borrow (or lend) at specific interest rates.

RP transactions must be settled in immediately
available funds such as deposits in Federal Reserve
Banks or collected liabilities of commercial banks
that may be withdrawn in cash the same business
day as the transaction occurs. Most new deposits in a
commercial bank are not immediately available, since
they result from the deposit of checks which may take
several days to collect. During this time, the credit
to the depositor’s account is only provisional. A cus­
tomer can make funds immediately available to a bank
other than the bank where funds are deposited, how­
ever, by transferring them through the Federal Re­
serve electronic communications network.

The term “reverse repurchase agreement,” fre­
quently used by participants in the RP market, signi­
fies the same transaction viewed from the perspective
of the lender. In an RP, the borrower sells a security
in order to receive funds and repurchases it at matu­
rity. In a reverse RP, the lender buys a security and
resells it at maturity. Large commercial banks and
government securities dealers frequently arrange re­
verse RPs in order to obtain government securities
with which to engage in an RP.

In an RP contract, the borrower pays interest on
the funds acquired at a rate negotiated with the
lender. This interest rate is not determined by yields

Growth of the RP Market

2Effective August 1, 1979, interest rate ceilings were imposed
on repurchase agreements of less than $100,000 with maturi­
ties of 90 days or more. To prevent undue hardship, a threeyear phase-out period was provided.
Effective in the statement week beginning October 11,
1979, a marginal reserve requirement was placed on “man­
aged liabilities” of member banks, Edge corporations, and
U.S. agencies and branches of foreign banks. These liabilities
include repurchase agreements against U.S. government and
federal agency securities as well as large time deposits
($100,000 and over with maturities of less than a year),
Eurodollar borrowings, and federal funds borrowings from a
nonmember institution. The base for the marginal reserve is
$100 million or the average amount of managed liabilities
held as of the two statement weeks ending September 26,
1979 whichever is larger. Any increase in managed liabilities
above this base is subject to an 8 percent reserve requirement.
Page 18



The market for RPs has increased dramatically in
the past few years, and it has become one of the
major financial markets in the nation (Table 1). Since
1969, RPs of commercial banks with the nonbank
public have grown at an average 26 percent annual
rate, although the pace has been uneven. The sharp­
est gain occurred in 1973 when outstanding RPs more
than doubled. In the following two years, RPs in­
creased at an average annual rate of 8 percent. Dur­
ing 1976, there was another jump (80 percent) in
RPs, and since then the average annual growth rate
has been 21 percent.

SEPTEMBER

FEDERAL RESERVE BANK OF ST. LOUIS

T a b le 1

O utstan d in g RPs*
(B illio n s o f D o lla rs )
Y e a r-e n d

A m oun t

1969

$ 4 .9

1970

2 .8

1971

4 .9

1972

6 .0

1973

1 3 .3

1974

1 4 .8

1975

1 5 .5

1976

2 7 .9

1977

3 6 .3

1978

4 3 .8

1979

4 5 .0 (J u n e )

♦Estimates o f RPs o f all commercial banks with the nonbank public
by staff o f Federal Reserve Board o f Governors.

The growth in RPs over this period reflects several
factors. The most important motivations for lending in
the RP market are the prohibition of interest pay­
ments on demand deposits and the higher market
interest rates since the mid-1960s. Also, both the
wider use of computers and more sophisticated cash
management systems have facilitated the collection
and transfer of large volumes of funds, contributing
to the growth of the market.

1979

other sources of funds are plentiful, they supply RP
funds. In addition, dealers act as financial intermedi­
aries or brokers between demanders and suppliers of
funds. By “matching” an RP transaction and a re­
verse RP transaction, they may profit by the differ­
ence in interest rates. Dealers sometimes use reverse
RPs to acquire securities in order to make a short
sale; the net cost of obtaining the securities through
reverse RPs is frequently less than the cost of bor­
rowed securities.
Many types of institutions supply immediately
available funds in this market, including nonfinancial
corporations and state and local governments. Busi­
ness firms and municipalities with large cash balances
are able to earn sizable returns (averaging about a
10 percent annual rate in the first nine months of
1979) on these funds by arranging RPs. Such a trans­
action converts the corporation’s or municipality’s de­
mand deposit balance into an interest-earning asset.
Yet, since the funds are committed for only a brief
period, they are still readily available for transactions
purposes.
Another advantage of RPs to certain nonbank in­
vestors is the flexibility in recording these transactions
on their books. Some investors choose to record the
ownership of U.S. government securities rather than
the ownership of RPs. This reporting feature is par­
ticularly appealing to those institutions, such as state
and local governments, that are required to invest in
Treasury securities.

Participants in the RP Market
Over the past decade, banks have obtained increas­
ing proportions of their total resources in the open
market. This activity, which involves bidding for li­
abilities in order to expand assets, is commonly called
liability management. This behavior differs from the
traditional role of banks, which is to receive deposits
from customers and to use these funds to lend or
invest. Devices now used to obtain such funds in­
clude federal funds borrowing, negotiable CDs, com­
mercial paper, Eurodollar borrowing, and RPs.
Large banks usually are borrowers of funds in the
RP market. These institutions typically seek funds
and have portfolios of government-issued and -guar­
anteed securities with which to transact.
Government security dealers also are important par­
ticipants in the RP market. They are generally net
borrowers of funds so that they can carry their size­
able portfolios of government securities. Occasion­
ally, however, when their inventories are low or when



Business firms and others hold cash primarily to
bridge the periods when expenditures exceed receipts.
Traditionally, most of these cash balances have been
held in the form of demand deposits in commercial
banks and, as a result, have not earned explicit inter­
est since 1933. This was not of great significance dur­
ing the low interest rate periods prior to the 1960s.
The higher interest rates in the sixties and seventies,
however, created the incentive for businesses to de­
velop better cash management techniques just as
banks were developing liability management tech­
niques. A variety of procedures were adopted to
achieve a reduction in cash balances, including speed­
ing up receipts, slowing down disbursements, and
converting cash into interest-bearing liquid assets.
RPs have become a particularly useful tool of cash
management. They generate sizable income during
periods of relatively high short-term interest rates.
Moreover, they are relatively secure and liquid. In
short, some corporations and municipalities treat RPs
as income-earning “demand deposits.”
Page 19

SEPTEMBER

FEDERAL RESERVE BANK OF ST. LOUIS

Federal Reserve System regulations play an impor­
tant role in the RP market by limiting the type of
transactions member banks may undertake. Federal
Reserve actions also influence federal funds rates
which, in turn, dominate the interest rates available
on RPs from day to day. The Fed is also a large direct
participant in the RP market. Although the Federal
Reserve supplies reserves primarily through outright
purchases of government securities, it also uses RPs
and reverse RPs to temporarily supply or absorb
reserves.

Implications of RPs for Financial Markets
The development of the RP instrument has led to
increased efficiency in financial markets. Both inves­
tors and borrowers are provided with an instrument
which has a combination of risk, maturity, flexibility,
and liquidity characteristics not previously offered by
other money market instruments. RPs are backed by
government securities and are adaptable for a wider
range of uses than most other financial instruments.
While participation in the federal funds market is
limited to commercial banks, mutual savings banks,
savings and loan associations, and federal agencies,
any person or firm may deal in RPs. RPs can be ar­
ranged for any maturity, while CDs, an alternate
source of funds to banks, cannot be issued for less than
30 days, and commercial paper is seldom written for a
period as brief as a day or two. Judging by the rapid
growth of RPs since 1970, the demand for financial
instruments with the combination of characteristics
of RPs has been substantial.
By providing a mechanism through which large
supplies of liquid balances are “auctioned” daily, the
RP market has improved the ability of the economy
to channel short-term funds into areas of greatest de­
mand. Thus, they enhance the efficient allocation of
resources.
Moreover, RPs have bolstered the liquidity of the
instruments eligible as collateral against RP borrow­
ings, including longer-term government and agency
obligations. The securities become more liquid since
they may be used to raise funds on short notice with­
out incurring the risk of capital loss that might occur
if an outright sale were the sole option.
RPs also facilitate arbitrage between financial in­
struments, as well as provide a straightforward source
of cash or investment outlet for short-term funds. For
example, RPs have broadened the sources of securities
Page 20



1979

available to traders active in short selling. In addi­
tion, RPs can be used during a period of rising inter­
est rates to supplement the yield on portfolios by
allowing investors to purchase higher-yielding instru­
ments without having to sell outright and take a cap­
ital loss on the securities in the portfolio. Those
securities may be sold under an RP and the funds used
to buy new securities.

Implications of RPs for Monetary Policy
Whether RPs should be included in measures of
the money supply is still an unsettled issue. Unlike
currency and demand deposits, RPs are not used di­
rectly as a medium of exchange, nor are they likely
to be used for transactions in the near future. Never­
theless, the maturities of RPs are so short (frequently
just overnight) that owners of the funds can treat
them virtually as demand deposits. They may even
write checks on the funds since the RPs will become
available as deposits before the checks clear. In fact,
the RP mechanism permits demand deposits to be
much larger during the day, when transactions are
conducted, than at the close of the day when the
money stock is measured and reserve requirements
are imposed.3
The accounting entries on the opposite page illus­
trate the balance sheet effects of a typical $1 million
bank demand deposit with and without the use of RPs.
By using the overnight RP, the customer has access to
the funds (deposit) during the banking day and earns a
return on the funds for the overnight loan ( RP). Also,
with the RP the bank is able to extend more credit
from the funds supplied. In addition, the reserves sup­
plied to the banking system are then available to sup­
port further bank credit and deposit expansion.
In practice, although many RP contracts are writ­
ten for very short terms, a sizable portion of the funds
used remains in RPs for relatively long periods. A
number of RP contracts initially are written for longer
terms, and some are made under continuing contracts,
with the provision that either party can withdraw
from the arrangement at any time.4 In many cases, the
daily contracts are simply “rolled over” ( extended for
3However, many customers are likely to perceive their demand
deposits to be reduced at the time the RP is arranged, usu­
ally early in the day. Thus, the timing of the bookkeeping
may have little significance.
4

According to a Federal Reserve survey in the week ending
December 7, 1977, about 10 percent of the RPs with nonbank
customers had maturities of over 30 days, 22 percent had
maturities of 8 to 30 days, and 17 percent had maturities of

FEDERAL RESERVE BANK OF ST. LOUIS

B an k
D epo sit o f
Funds (n o
RPs u se d )

$ 8 5 0 ,0 0 0
Lo an s an d
In vestm ents

$1 M illio n
D eposit

SEPTEMBER

N o n b a n k Cu stom er
$1 M illio n
D epo sit

$1 M illio n
N e t W o rth

$ 1 5 0 ,0 0 0
R equired
C ash
R eserves
(1 5 %
assum ed
re q u ire ­
m ent)

D epo sit o f
Funds U sin g
R Ps: D uring
D ay

M illio n
Lo an s an d
In vestm en ts

$1 M illio n
N e t W o rth

$1 M illio n
D eposit

$1 M illio n
D epo sit

$1 M illio n
RP
B o rro w in g

$1 M illio n
$1 M illio n
G o ve rn m e n t N et W o rth
S e cu rity o r
$1 M illio n
C o lla te r a l­
ized Loans
(R P )

N o rese rve s
req u ire d
sin ce not
im posed
u ntil close
of d a y

A t C lo se of
Bank D a y

$1 M illio n
lo a n s &

(R P 'n
e ffe ct)

In vestm en ts

N o rese rve s
req u ire d on
RP fu n d s

a longer period). Corporations use these longer-term
arrangements when they are accumulating funds in
anticipation of payments for taxes, dividends, pay­
rolls, construction, or other large outlays.
To the extent that RPs are used to accumulate
liquid balances over a period for some anticipated
future outlay, they may be more appropriately classi­
fied as time deposits rather than demand deposits;
such balances would be more appropriately included
in the M2 concept of money which includes liquid
savings, rather than the Mi concept which does not.
Even if it is concluded that RPs are not money ( M ^ ,
however, the rapid growth of this highly-liquid asset
has almost certainly affected the velocity of demand
deposits by permitting corporations to obtain desired
liquidity with fewer demand deposits than otherwise.
The existence of the RP market, as well as the RPs
themselves, have probably reduced the demand to
hold demand deposits. For instance, the greater abil­
ity of nonbanking firms to borrow on short notice by
2 to 7 days, and slightly over half were 1 day or continuing
contract. Wayne Smith, “ Repurchase Agreements and Fed­
eral Funds,” Federal Reserve Bulletin (May 1978), pp.
353-60.



1979

“selling” government securities on RPs reduces the
price risk which otherwise exists if the securities were
sold outright when cash needs arise. Hence, business
firms are better able to substitute government secu­
rities for some demand deposits.
Money plays a unique role in economic stabiliza­
tion. Since the demand for money relative to total
spending has usually been relatively stable, changes
in the money stock produce similar changes in total
spending for goods and services. A number of re­
searchers working with economic models of the econ­
omy, however, have found an apparent shift in the
money demand equation in the mid-1970s.8 Prelimi­
nary analyses suggest that the apparent shift in the
money demand function would have been somewhat
smaller if RPs are included in the stock of money.
The evidence does not settle the conceptual issue of
whether RPs are money, but the studies do provide
some empirical support for including RPs in the defi­
nition of money for policy purposes. Even if RPs are
not judged to be money, they are closer substitutes to
it than other near monies and help explain the prob­
lems in estimating the money demand function.8
On the other hand, it has been argued that RPs are
not money (Mi) .7 Most RP transactions are actually
made by early afternoon, and thus do not represent
an automatic investment of end-of-day balances. Also,
if the shift in money demand in 1974 was a one-time
exogenous shock, the more stable relationship by in­
cluding RPs in the money demand function would not
necessarily last, and money-demand specifications
without RPs would be correct.
In any case, the effect of RPs on the money stock
(or money demand) is less than indicated by the
total RPs outstanding. Interbank RPs are offsetting
and have no net effect on the demand to hold money.
Transactions among the nonbank public — for exam­
ple, an RP between a business concern and a govern­
5Jared Enzler, Lewis Johnson, and John Paulus, “ Some Prob­
lems of Money Demand,” Brookings Papers on Economic
Activity (1: 1976), pp. 261-80.
eGillian Garcia and Simon Pak, “ Some Clues in the Case of
the Missing Money,” American Economic Review (May
1979), pp. 330-34. See also John Wenninger and Charles
Sivesind, “ Defining Money for a Changing Financial Sys­
tem,” Quarterly Review, Federal Reserve Bank of New York
(Spring 1979), pp. 1-8, and John Scadding, “Are RPs
Money?” Federal Reserve Bank of San Francisco Weekly
Letter, Federal Reserve Bank of San Francisco (June 29,
1979), pp. 1-3.
7Richard Porter, Thomas Simpson, and Eileen Mauskopf,
“Financial Innovation and the Monetary Aggregates,” Brook­
ings Papers on Economic Activity (1 : 1979), pp. 213-29.
Page 21

FEDERAL RESERVE BANK OF ST. LOUIS

ment bond dealer — also have little net effect, since
what one firm gains the other forgoes. Similarly, when
a bank engages in a reverse RP in order to obtain
government securities to facilitate an RP, these
matched transactions become largely counterbalanc­
ing. Transactions that have the largest monetary
effects are those in which a commercial bank deals
with the nonbank public, securing the transaction
with government securities from its own portfolio.

Conclusions
Repurchase agreements have grown markedly in
recent years, attaining the status of a major financial
instrument. Since RPs provide a market yield on funds
available virtually on demand, they are useful for pri­

Digitized forPage
FRASER
22


SEPTEMBER

1979

vate businesses and municipalities which must hold
large highly-liquid balances. RPs are also valuable to
banks and government bond dealers as a source of
short-term funds. The public generally has also bene­
fited since funds and resources have been more effi­
ciently channelled by RPs.
Everything else being equal, the pronounced ex­
pansion in RPs has stimulated total demand for goods
and services. Because of data limitations and many
offsetting impacts, however, knowledge of the net
extent of this stimulative effect is limited. It is un­
settled whether analysis of the impact of RPs would
be improved by considering them (or a portion of
them) as money or as a force affecting the demand
for money.

FEDERAL RESERVE BANK OF ST. LOUIS

SEPTEMBER

1979

Publications of This Bank Include:
Weekly

U. S. FINANCIAL DATA

Monthly

REVIEW
MONETARY TRENDS
NATIONAL ECONOMIC TRENDS

Quarterly

CENTRAL MISSISSIPPI VALLEY ECONOMIC
INDICATORS
INTERNATIONAL ECONOMIC CONDITIONS

Annually

ANNUAL U. S. ECONOMIC DATA

Single copies of these publications are available to the public without charge.
For information write: Research Department, Federal Reserve Bank of St. Louis,
P. O. Box 442, St. Louis, Missouri 63166.




Page 23