Comment on “Labour Productivity: Are Diverging Trends between Developed Countries Durable?” Michel Fouquin (CEPII) December 5, 2008 Kyoji Fukao Hitotsubashi University and RIETI 1 Main Findings of the Paper • Many European countries and Japan experienced a significant slowdown of their labour productivity (LP) growth in the 1990s. In contrast, the US experienced an acceleration in LP growth. • The slowdown of LP growth in Europe was mainly caused by a slowdown of multi‐factor productivity (MFP) growth, not by a slowdown of capital accumulation, such as ICT investment. • It seems that the slowdown of MFP growth was partly caused by the creation of new jobs in Europe. (Adjustment costs, costs of training workers, etc.) 2 Can we apply the same logic to Japan’s case? Figure 2-1 Growth Accounting for the Market Sector in Japan, the US, and the Major EU Economies 1995-05 1980-95 10.0 10.0 8.0 8.0 6.0 6.0 annual average, % 4.0 4.0 Contribution of capital input growth US 80-95 Italy 80-95 UK 80-95 France 80-95 Germany 80-95 Korea 80-95 US 95-05 -2.0 Italy 95-05 -2.0 UK 95-05 Gross value added growth France 95-05 0.0 Germany 95-05 0.0 Korea 95-05 Contribution of labor input growth Japan 95-05 2.0 2.0 Japan 80-95 annual average, % Contribution of TFP growth 3 Source: EU KLEMS Database, March 2008. 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 0.8 0.0 US 80-95 0.0 Italy 80-95 0.2 UK 80-95 0.2 France 80-95 0.4 US 95-04 0.6 0.4 Germany 80-95 Contribution of capital input growth Italy 95-04 0.6 1.0 UK 95-04 0.8 of which: ICT capital France 95-04 1.0 1.2 Germany 95-04 1.2 of which: NonICT capital Japan 95-04 annual average, % 2.0 Japan 80-95 annual average, % 1980-95 4 Source: EU KLEMS Database, March 2007. 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 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 5 Can we apply the same logic to Japan’s case? • The slowdown of LP growth in Japan was caused not only by a slowdown of MFP growth but also by a slowdown of capital accumulation. The cause of this seems to be the continuous decline of the rate of return to capital. • In the case of Japan, we can not explain the slowdown of MFP growth by the creation of new jobs. Probably, we can partly explain the stagnation of MFP by low ICT and intangible investment. 6 Can we apply the same logic to Japan’s case? The gross rate of return to capital in Japan (and Korea) declined continuously from the 1970s. 7 • It seems that Japan did not experience an “ICT revolution,” partly because of the stagnation of ICT investment. Figure 3-2 ICT Investment/GDP Ratio in the Major Developed Countries 14 12 Japan Korea 10 US UK % 8 6 France Germany Italy 4 2 0 Source: EU KLEMS Database March 2008, JIP Database 2008, KIP Database 8 Intangible Investment in Japan • The intangible investment/output ratio in Japan is much smaller than that in the US. Japan % % US 26 24 24 22 22 Intangible Investment 20 20 Tangible Investment 18 16 Intangible Investment 18 Tangible Investment 16 14 12 12 10 10 8 8 6 6 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 2004 14 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 26 Sources: Japan: Fukao et al., US: Corrado, Hulten and Sichel (2006). 9 Japan invests a lot in R&D but very little in economic competencies. Intangible investment by category : share in total intangible investment 100% 90% 80% Computerized information 70% 60% Science and engineering R&D 50% 40% Other innovative property 30% Brand equity 20% Firm-specific resources 10% 0% Japan, 2000-05 US, 19982000 UK, 2004 Sources: Japan: Authors‘ calculations, US: Corrado, Hulten and Sichel (2006), UK: Marrano and Haskel (2006). 10 The intangible investment/GDP ratios of European countries are even lower than that of Japan. 11 Japan’s MFP growth has recovered since 2000. In the 2000s, the most important source of Japan’s economic growth 12 was MFP growth.