Pollution Abatement Costs: Hurting or Helping Productivity?

This paper analyzes the effect that regulatory inputs or expenditures for labor, materials, and capital have on productivity for three industries (blast furnaces and steel mills, alkalies and chlorine, and petroleum refining). Data is examined from 1973 to 1994 and the growth rate of total factor productivity (TFP) is considered. The pattern of pollution abatement expenditures for three media, water, air, and solid wastes, is also examined graphically. In addition, the measurement for TFP is adjusted to net out regulatory inputs for labor, materials, and capital. A comparison between the original and adjusted measurement of TFP is made for each industry. A one percent increase in capital abatement expenditures causes a .29% decrease in productivity while a one percent in labor abatement expenditures causes a .38% increase in productivity for blast furnaces and steel mills. Combined with results from the TFP comparison in this industry, which revealed that abatement expenditures improved productivity, these results suggest that the positive effect of labor inputs outweighs the negative effect of capital. Significant results at the 95% confidence level were not obtained for alkalies and chlorine or petroleum refining industries. However, abatement expenditures for labor are weakly significant at the 90% confidence level for petroleum refining showing that a one percent increase in labor expenditures causes a .20% decrease in productivity. These results are consistent with the TFP comparison results