Productivity in Japan, the US, and
the Major EU Economies:
Is Japan Falling Behind?
Prepared for the BBL Seminar
RIETI, Tokyo
April 17, 2007
Kyoji Fukao
Hitotsubashi University
Tsutomu Miyagawa
Gakushuin University
April 17, 2007
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1. Motivation
• Japan’s economic growth stalled:
1973-1995: 3.3%
1995-2004: 1.0% (lowest among the US, Japan,
Germany, France, the UK and Italy).
• Van Ark et al. (2006) report that TFP growth in ICTusing industries in the core EU countries since 1995
has been much slower than in the US.
• Stiroh (2002a) and Triplett and Bosworth (2002) report
that TFP growth in ICT-using industries has
accelerated substantially since 1995.
• Does Japan have a similar problem as the major EU
economies with regard to the introduction of ICT to
market services?
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1. Motivation contd.
• There have been few studies which compare TFP
growth and the impact of the ICT revolution in the
major EU economies, Japan and the US at the industry
level, probably because of the lack of appropriate data
for a broad and rigorous international comparison.
• Researchers of the Japan Industrial Productivity
Database Project, including the authors, have joined
the EU KLEMS consortium and supplied original data
on Japan for the EU KLEMS database.
• The first public-release version of the EU KLEMS
database became available online at the EU KLEMS
website, http://www.euklems.net/ on March 15.
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Structure of the paper
• Section 2; we present an overview of the pattern of
economic growth and productivity improvement in
Japan, the major EU economies, and the US. We also
compare the absolute labor productivity levels of
these countries by industry.
• Section 3; we analyze the role of ICT investment on
economic growth in these countries.
• Section 4; We analyze the accumulation of intangible
assets, such as human capital and organization
capital. (It is frequently argued that in order to fully
realize the direct and indirect efficiency-improving
effects of ICT capital, the simultaneous accumulation
such assets, is indispensable.)
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2. Overview of Economic Growth and
Productivity Improvement
• It is not the gap in TFP growth but
differences in factor input growth that
caused the large difference in the
economic growth performance of
France, the UK and Italy, which
registered acceleration in economic
growth after 1995, on the one hand and
Japan on the other in the period after
1995.
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Figure 1. Growth Accounting for the Market Sector in Japan, the US, and the Major EU Economies
1995-04
4.0
3.5
3.5
3.0
3.0
2.5
2.5
-0.5
-1.0
US 95-04
-1.0
US 80-95
-0.5
Italy 80-95
0.0
UK 80-95
0.0
France 80-95
0.5
Germany 80-95
0.5
Italy 95-04
1.0
UK 95-04
1.0
1.5
France 95-04
1.5
Contribution of
capital input
growth
Contribution of
labor input
growth
Gross value
added growth
2.0
Germany 95-04
2.0
Contribution of
TFP growth
Japan 95-04
annual average, %
4.0
Japan 80-95
annual average, %
1980-95
Source: EU KLEMS Database, March 2007.
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Figure 2. Contribution of Labor Input Growth: Japan, the US and the Major EU Economies
1995-04
1.4
1.2
1.2
1.0
1.0
0.8
0.8
0.6
0.6
-0.6
-0.8
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0.2
-0.4
-0.6
US 95-04
-0.2
Italy 95-04
0.0
UK 95-04
US 80-95
Italy 80-95
UK 80-95
-0.4
France 80-95
-0.2
Germany 80-95
0.0
of which: Total
hours worked
France 95-04
0.2
0.4
Germany 95-04
0.4
of which: Labor
composition
Japan 95-04
annual average, %
1.4
Japan 80-95
annual average, %
1980-95
Contribution of
labor input
growth
-0.8
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Figure 3. Contribution of Capital Input Growth: Japan, the US and the Major EU Economies
1995-04
2.0
1.8
1.8
1.6
1.6
1.4
1.4
0.6
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Japan 95-04
0.0
US 80-95
0.0
Italy 80-95
0.2
UK 80-95
0.2
France 80-95
0.4
Germany 80-95
0.4
Source: EU KLEMS Database, March 2007.
Contribution of
capital input
growth
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US 95-04
0.6
0.8
Italy 95-04
0.8
of which: ICT
capital
1.0
UK 95-04
1.0
1.2
France 95-04
1.2
of which: NonICT capital
Germany 95-04
annual average, %
2.0
Japan 80-95
annual average, %
1980-95
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2. Overview contd.
• The four major EU economies (Germany, France, the
UK and Italy) and Japan experienced a slowdown in
TFP growth of a similar magnitude after 1995. Only the
US accomplished an exceptional acceleration in TFP
growth.
• TFP growth in the electrical machinery, post and
communication sector was still highest in Japan
among the six economies after 1995. However, like in
other countries, the share of this sector in the
economy overall is not very large. The average share
of labor input in this sector in Japan’s total labor input
in 1995-2004 was 4.1%.
• The largest declines in TFP growth in Japan occurred
in distribution services and in the rest of the
manufacturing sector. The labor input shares of these
two sectors were 23.4% and 16.8% respectively. The
US and the major EU economies except Italy recorded
higher TFP growth in these two sectors.
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Figure 4. TFP Growth in the Market Sector: by Sector and by Country
Manufacturing, excluding electrical
machinery
Electrical machinery, post and
communication
8.0
3.5
7.0
3.0
6.0
2.5
2.0
1
1.5
1980-95
1995-2004
1.0
Other goods producing industries
Finance and business services
-1.5
-4.0
-2.0
US
-1.0
-3.5
Italy
-3.0
UK
-0.5
France
-2.5
Germany
0.0
-1.0
Italy
US
US
UK
-0.5
Italy
1980-95
1995-2004
0.5
France
0.0
1.0
-2.0
UK
0.5
1.5
1980-95
1995-2004
France
UK
US
Personal and social services
1.0
Japan
-1.5
US
2.0
Italy
0.0
UK
2.5
France
0.5
Germany
3.0
Japan
3.5
1.0
-1.0
-1
Distribution services
1.5
-0.5
-0.5
Germany
-1.5
Italy
-1.0
France
-0.5
1980-95
1995-2004
0.5
0
Germany
US
Italy
UK
0.0
France
0.0
Germany
0.5
Japan
1.0
Japan
2.0
Germany
3.0
1.5
Japan
1980-95
1995-2004
4.0
2
Japan
5.0
Other goods-producing industries
1980-95
1995-2004
-1.5
-2.0
-2.5
Source: EU KLEMS Database, March 2007.
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• Inklaar et al. (2006) found that labor
productivity levels in market services in
continental Europe were on par with the US in
1997, but since then productivity growth in
Europe has been much weaker, suggesting
that the continental European countries need
to do more to innovate and adjust economic
structures to novel technologies.
• This observation raises the question: Is Japan
in a similar situation as the continental
European countries?
• We use the results of a comparison of labor
productivity (real value added per man-hour)
conducted by the Japan Economic Foundation
(JEF) and the Japan Center for Economic
Research (JCER) (JEF-JCER 2007).
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Figure 5. Labor Productivity: Japan-US Comparison
0
1
2
3
Economy overall
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Agriculture, fisheries and forestry
Mining
Food products
Textile products
Pulp, paper and wood products
Petroleum and chemical products
Stone, clay and ceramic products
Metals
Metal products
General machinery
Electric machinery
Precision machinery
Transportation machinery
Miscellaneous manufacturing products
Electricity, gas and water supply
Construction
Wholesale and retail
Hotels and eating and drinking places
Transportation
Communication
Finance and insurance
Real estate
Other business services
Education
Medical services
Other services for individuals
Public services
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Source: JEF-JCER (2007).
Japan/US 1995
Japan/US 2002
12
Figure 6. Labor Productivity: Germany-US Comparison
0
1
2
3
Economy overall
April 17, 2007
Agriculture, fisheries and forestry
Mining
Food products
Textile products
Pulp, paper and wood products
Petroleum and chemical products
Stone, clay and ceramic products
Metals
Metal products
General machinery
Electric machinery
Precision machinery
Transportation machinery
Miscellaneous manufacturing products
Electricity, gas and water supply
Construction
Wholesale and retail
Hotels and eating and drinking places
Transportation
Communication
Finance and insurance
Real estate
Other business services
Education
Medical services
Other services for individuals
Public services
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Source: JEF-JCER (2007).
Germany/US 1995
Germany/US 2002
13
Figure 7. Labor Productivity: France-US Comparison
0
1
2
3
Economy overall
April 17, 2007
Agriculture, fisheries and forestry
Mining
Food products
Textile products
Pulp, paper and wood products
Petroleum and chemical products
Stone, clay and ceramic products
Metals
Metal products
General machinery
Electric machinery
Precision machinery
Transportation machinery
Miscellaneous manufacturing products
Electricity, gas and water supply
Construction
Wholesale and retail
Hotels and eating and drinking places
Transportation
Communication
Finance and insurance
Real estate
Other business services
Education
Medical services
Other services for individuals
Public services
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Source: JEF-JCER (2007).
France/US 1995
France/US 2002
14
Figure 8. Labor Productivity: UK-US Comparison
0
1
2
3
Economy overall
April 17, 2007
Agriculture, fisheries and forestry
Mining
Food products
Textile products
Pulp, paper and wood products
Petroleum and chemical products
Stone, clay and ceramic products
Metals
Metal products
General machinery
Electric machinery
Precision machinery
Transportation machinery
Miscellaneous manufacturing products
Electricity, gas and water supply
Construction
Wholesale and retail
Hotels and eating and drinking places
Transportation
Communication
Finance and insurance
Real estate
Other business services
Education
Medical services
Other services for individuals
Public services
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Source: JEF-JCER (2007).
UK/US 1995
UK/US 2002
15
• Productivity levels in Germany and France were very
close to those in the US both in market services and
manufacturing.
• Productivity levels in the UK were lower than in the
two continental European countries.
• In manufacturing sectors, productivity levels in Japan
were on par with those in the US, Germany and France.
• However, they were very low in comparison with the
three countries both in market services and other
goods-producing industries.
• It therefore seems that there is large room for
improvement in Japan’s productivity in market
services and other goods-production services through
the adoption of already existing technologies and
better resource allocation.
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3 The Role of ICT Investment (1)
• The previous studies
→Jorgenson (2001) Jorgenson and Stiroh (2000): ICT
investment accelerated the economic growth in the
US in the second half of 90s.
→van Ark et, al. (2003): Due to the slow growth in ICT
investment, the economic growth in EU countries
lagged behind the US economic growth.
→Shinozaki (1999), Miyagawa, Ito, and Harada (2004)
and others: Slow productivity growth in Japan was
caused by the lack of the accumulation in ICT assets.
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3 The Role of ICT Investment (2)
• Comparing ICT investment by using EU
KLEMS database
• The definition of ICT assets in EU KLEMS
database: computing equipment,
communication equipment, and software.
• Figure 9: comparing ICT capital service in
Japan, the US, and the major EU
countries.
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Figure 9. Growth of ICT Capital Service Input in the Whole Economy
450
400
Japan
350
US
UK
300
1995=100
Germany
France
250
Italy
200
150
100
50
_1980
_1981
_1982
_1983
_1984
_1985
_1986
_1987
_1988
_1989
_1990
_1991
_1992
_1993
_1994
_1995
_1996
_1997
_1998
_1999
_2000
_2001
_2002
_2003
_2004
0
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Source:
EU
KLEMS
Database
March
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3 The Role of ICT Investment (3)
• Three groups
(1) Front runner: the US and the UK→16-17％ per
annum from 1995 to 2004.
(2) The second group: Germany and
France→12% per annum from 1995 to 2004
(3) The last group: Japan and Italy →ICT capital in
2004 is less than twice as high as their 1995
level →Japan did not catch up the trend of
downsizing in the 90s.
(4) Particularly, growth in ICT capital service in the
service sector in Japan is relatively
low.→Figures 10 and 11
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Figure 10. Growth of ICT Capital Service Input in Distributution Industry
450
400
350
1995=100
300
Japan
US
UK
Germany
France
Italy
250
200
150
100
Source: EU
KLEMS
Database
March 2007
50
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_2
00
4
_2
00
2
_2
00
0
_1
99
8
_1
99
6
_1
99
4
_1
99
2
_1
99
0
_1
98
8
_1
98
6
_1
98
4
_1
98
2
_1
98
0
0
21
Figure 11. Growth of ICT Capital Service Input in Personal and Social Services
600
500
1995=100
400
Japan
US
UK
Germany
France
Italy
300
200
100
Source: EU
KLEMS
Database
March 2007
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_2
00
4
_2
00
2
_2
00
0
_1
99
8
_1
99
6
_1
99
4
_1
99
2
_1
99
0
_1
98
8
_1
98
6
_1
98
4
_1
98
2
_1
98
0
0
22
3 The Role of ICT Investment (4)
• The role of ICT investment on economic growth
classified into two types: one is capital
deepening effect and the other is external effect
which affects TFP growth.
• The first effect depends on the accumulation of
ICT capital.
• Table 1 : in all countries except Japan, the
contribution rate of ICT capital increased from
the period before 1995 to the period after 1995.
• In Japan, we do not find any industry where the
contribution of ICT capital increased.
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Table 1. Direct Contributions of ICT Capital Service Input Growth to the Economic Growth
Market economy total
.Electrical machinery, post
and communication
.Manufacturing, excluding
electrical
.Other goods producing
industries
1980-95
France Germany
0.3
0.9
Japan
0.4
US
0.5
1.2
1.0
0.4
0.2
0.3
0.2
1995-2004
France Germany
0.5
1.0
Italy
0.2
UK
0.5
Japan
0.3
US
0.8
Italy
0.2
UK
1.0
2.3
0.8
1.3
1.0
1.5
0.8
2.7
0.2
2.7
0.2
0.4
0.1
0.3
0.1
0.4
0.3
0.5
0.1
0.5
0.2
0.1
0.2
0.1
0.1
0.1
0.2
0.2
0.1
0.0
0.1
0.2
0.6
0.2
0.5
0.3
0.4
0.1
1.0
0.3
0.8
0.2
0.8
1.6
1.0
0.7
2.2
0.5
1.0
1.2
1.2
1.0
1.8
0.7
1.8
0.3
0.2
0.5
0.6
0.0
0.4
0.2
0.4
0.0
0.5
0.3
0.5
.Distribution services
.Finance and business
services
.Personal and social
services
Source: EU KLEMS Database March 2007
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3 The Role of ICT Investment (5)
• Figure 12 describes the second effect.
• In Figure 12, the growth rate of ICT capital
positively correlated to TFP growth.
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Figure 12. TFP Growth and the Growth of ICT Capital Service Input
2.0
TFP growth rate (%
1.5
TFP growth
18
Growth rate of ICT Capital
Service Input
16
14
1.0
12
0.5
10
8
0.0
Japan
US
France
Germany
Italy
UK
6
Growth rate in ICT capital servic
20
4
-0.5
2
0
-1.0
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4 Intangibles as Complements to ICT Capital (1)
• The degree of effects of ICT capital on
TFP growth is different (for example the
US vs. the UK).
• Intangible assets may play a
complementary role on the effects of ICT
capital on TFP growth
• The definitions of intangible capital → van
Ark (2004) and Corrado, Hulten and Sichel
(2005, 2006).
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Table 2. Classification in Knowledge Capital
(A) ICT capital
(A1) Hardware
(A2) Telecommunication infrsutructure
(A3) Software
(C) Knowledge capital
（C1) Research and development and patents
(C2) Lincenses, brands, and copyrights
(C3) Other technological innovation
(B) Human capital
（B1) Formal education
(B2) Company training
(B3) Experience
(D) Organizational capital
（D1) Engineering design
(D2) Organization design
(D3) Structure in database and its use
(D4) Remuneration of innovative idea
(E) Marketing of new products（'customer capital'）
(F) Social capital
（Source）van Ark (2004)
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Table 3. Intangible Asset Investment: Japan, the US and the UK
Japan
US
UK
(billion yen）
（billion US
dollar）
（billion
pound）
（1998-2000）
154
（2004）
19.8
（1995-2002）
Computerlized information
Custom software
Packaged software
In-house software
Database
Innovative property
Science and engineering R&D
Mineral exploration
Copyright and license costs
Other product development, design,
and research expenses
Economic competencies
Brand equity
Firm-specific human capital
Organizational structure
Total
9,714
5,663
449
2,708
7.5
151
3
12.4
4,659
424
184
18
75
37.6
12.4
0.4
2.4
3,801
149
22.4
12,899
505
140
69.3
18.5
894
18,133
9,634
40
4,774
1,600
28.5
6,525
365
69.3
40,746
1085
126.7
11.7
10.9
Intangible investment /GDP(%)
7.8
Intangible investment/tangible
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investment
0.3
1.2
29
4 Intangibles as Complements to ICT Capital (2)
• In Table 3, we measure the amount of
aggregate intangible investment in Japan
following Corrado, Hulten, and Sichel (2005,
2006) and Marrano and Haskel (2006).
• The Japanese intangible investment was about
40 trillion yen on average from 1995 to 2002.
• Its ratio to GDP was 7.5% which is less than
those in the US and the UK.
• Moreover, the ratio of intangible investment to
tangible investment was much lower than that in
the US.
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4 Intangibles as Complements to ICT Capital (3)
• The low GDP ratio in Japan is caused by
relatively low accumulation in firm-specific
human capital and organizational capital.
• The relatively low level of intangible
investment in Japan may explain why the
accumulation of ICT capital has not raised
TFP growth effectively.
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