productivity growth. Growth in productivity is important for a number of reasons. Most importantly, it determines, in large part, national standards of living. A country that enjoys strong real growth in productivity over time can expect a corresponding increase in wages and income for its citizens. Nations with increasing productivity also have the capacity to support investment in programs that affect the quality of life for society as a whole. At the individual firm level, productivity growth rates determine, in part, the ability to compete effectively in global markets.

The rate of growth in labor productivity in the private, nonfarm business sector in the United States, which averaged 3.3 percent annually during 1948–1965, declined to roughly 1.2 percent after 1970. The slowdown in productivity growth has important implications for growth in domestic income. Had labor productivity growth maintained its pre-1965 average annual rate, by 1985 the total U.S. output would have been 45 percent higher than it actually was. Since 1973, labor productivity growth rates have dropped significantly, as has growth in real hourly earnings. Hourly compensation, which includes fringe benefits, has grown at only 0.8 percent annually since then.

There has been strong growth in per capita personal income, however, which includes not only wages and fringe benefits, but also dividends, rents, and transfers to compensation. Much of the divergence between the growth in per capita income and stagnant compensation growth rates appears to be due to rapid expansion of labor participation, growth in income from nonlabor sources, and a decline in real hourly wage rates of nonsupervisory (production) workers.2

Lower rates of growth in productivity and compensation also mean that the generation of workers entering the work force during the past 10 to 15 years—particularly production workers in positions that are usually associated with lower levels of skill, training, and education—faces the prospect of lifetime earnings and living standards lower than those of its parents. This is a risk as long as real compensation growth remains stagnant over time for these workers.

This report examines an important part of U.S. productivity growth and long-term standards of living: the development, commercialization, and adoption of new technologies. Based on our analysis of this subject, the panel has concluded that U.S. policy, as it relates to civilian technologies, requires change. The structure of postwar U.S. science and technology policy was in many important ways a response to the Cold War. With the passing of the Cold War and other developments in the international economic, political, and technological environments, modifications in U.S. policy toward civilian technology development are justified.

Modifications in U.S. technology policy, however, will be insufficient by themselves to reverse the trends in U.S. productivity and income growth

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