Home> News Release> News Release 2008> A Factorial Analysis of the Decline in Japan’s Labor Productivity Through an International Comparison by Industry

Back to the previous page
News Release

A Factorial Analysis of the Decline in Japan's Labor Productivity Through an International Comparison by Industry
- Strategies for Increasing Productivity in Retail and Services -

December 9, 2009

Overview

As birthrate decline and population aging gather momentum, Japan needs to increase its productivity in order to maintain and increase its economic growth potential. In recent years, the problem of economic disparities has been in the spotlight and interest in policies for the redistribution of income has been growing, but to achieve the growth in national income that is required if there is to be any redistribution in the first place, it will be necessary to boost productivity. At a micro level, greater productivity is a precondition of improved business performance and, by extension, of wage growth. Given this perception of the issues, this report focuses on "labor productivity", which is conceptually simple and easy to measure, and considers measures by which it might be increased, by means of an international comparison by industry.

The trends in labor productivity in Japan, by industry, were analyzed by means of (i) a comparison between Japan, the United States and Europe (represented by the United Kingdom, Germany, France, and Italy) and (ii) a time series comparison (a comparison between recent years and the period of relatively stable growth that followed the 1st Oil Crisis). The international comparison confirmed the prevailing belief that productivity growth in Japan's tertiary sector has been slow. When the findings of the time series comparison were factored in, it became clear that the key cause of the sluggishness of Japan's productivity in recent years was the stagnation of commerce and the service industries. In terms of the proportion of the workforce that they employ, too, it is important that productivity should increase in commerce and services.

It is generally thought that, while productivity in Japan's non-manufacturing sector is low, its manufacturing sector enjoys high productivity. However, the reason that overall labor productivity in manufacturing has not fallen is that the proportion of the workforce employed by industries with low productivity has fallen, while the proportion employed by industries where productivity is high has risen. On an individual basis, the growth of productivity has by no means accelerated in every industry. It is also a fact that the ability of the manufacturing sector as a whole to create added value has declined. Given that (i) the ratio of input from the tertiary sector into manufacturing is growing, and (ii) the capacity of the manufacturing sector to absorb excess labor is limited, Japan's excessive reliance on the growth of productivity in the manufacturing sector alone is reaching its limits.

In the retail sector, capital intensity of labor has seen a sharp rise since the end of the 1990s, but because equipment efficiency has recorded a sharp fall, productivity has seen little growth. Against the backdrop of ultra-low interest rates from the end of the 1990s and a rise in the supply of cheap labor, the competition to establish new stores in the suburbs, triggered by a relaxation of rules on store location, left retailers with too many stores and a labor surplus. In the medium-to-long term, if productivity in the retail sector is to improve, interest rate structures must be normalized, equilibrium must be achieved between the wage systems applicable to regular and non-regular employees and surplus stores and workers must be shed. Population decrease will promote the concentration of urban functions and, indirectly, improve store efficiency in the retail sector.

The "normalization of interest rate and wage structures and the concentration of urban functions" will promote greater productivity in the retail sector, but will also reduce its ability to absorb labor. In policy terms, other opportunities for employment must be provided to replace the retail sector. An international comparison, from this point of view, of the proportions of total added value created by different industries, reveals that, in Japan, the proportion generated by lifestyle-related service industries, especially medical care, education and childcare, is particularly small. Japan needs to boost productivity in the retail sector and, at the same time, promote the growth of lifestyle-related service industries through (i) the implementation of urban planning initiatives designed to promote the concentration of urban functions, (ii) the promotion of competition through regulatory reform in the medical care, education and childcare sectors, (iii) measures to support a better work-life balance, and (iv) active support for job skills development.

The growth of lifestyle-related service industries is important because of its connection with greater productivity in the retail sector, but in terms of boosting productivity in the services sector itself, there is greater scope for improvement in business-related services than in lifestyle-related services. An international comparison reveals that business-related service industries in Japan account for only a small part of the services sector. Given that the very raison d'être of business-related service industries lies in improving the operational efficiency of their corporate clients, the lack of development of business-related services in Japan is intimately related to the slow progress in rationalizing and increasing the efficiency of business processes, especially in the white-collar sector.

To improve the efficiency of white-collar business processes, and thereby enhance the productivity of business-related services industries, Japanese companies must aim to build "open, autonomous organizations" and take the initiative in (i) redesigning office workstyles and (ii) fostering "autonomous, professional human resources" and "producer-type managers". Business-related service industries should play the role of mentors and leaders, and focus their energies on assimilating the expertise of foreign-affiliated companies and developing professional human resources. Government policy can only provide indirect support, but, in addition to encouraging the self-help efforts of the private sector through general measures designed to create an environment favorable to competition, the government should (i) set about reforming the postgraduate professional education system to support the development of professional human resources geared to the needs of the business sector, (ii) provide tax concessions to promote the creation and improvement of IT systems, and (iii) reform labor legislation to facilitate the adoption of teleworking and other flexible workstyles.

For more information on the content of this report, please contact Hisashi Yamada, the Japan Research Institute, Limited.

Tel: 03-3288-4245
E-mail:yamada.hisashi@jri.co.jp

News Release
Get ADOBE READER

To view the PDF files,
you need Adobe Reader installed.
Adobe Reader downloadExternal link