did social security improve labor productivity?

8

Click here to load reader

Upload: yasuharu-ukai

Post on 25-Aug-2016

216 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: Did Social Security Improve Labor Productivity?

Rev Socionetwork Strat (2011) 5: 57-64

Research Note:

Did Social Security Improve Labor Productivity?

Yasuharu, UKAI1, 2)

1) The Research Institute for Socionetwork Strategies, Kansai University

3-3-35 Yamate-cho, Suita 564-8680, Osaka, Japan

2) Faculty of Informatics, Kansai University

2-1-1 Ryozenji, Takatsuki 569-1095, Osaka, Japan

[email protected]

http://www.kansai-u.ac.jp/riss/en/index.html

Received: 8 November 2011 / Accepted: 29 November 2011

© Springer Japan 2011

Abstract. This note statistically investigates the relationship between social

security expenditure indexes and labor productivity during 1980- 2009 in Japan

based on the Solow type of production function. In the case of real social

security expenditure per labor and per total working hours, labor productivity

decreases with respect to real social security. On the other hand, in the case of

real social security expenditure per private capital stock, labor productivity

increases with respect to real social security. However, the partial regression

coefficients of these three indexes are not significant statistically. Therefore, we

could not derive a clear relationship between the social security indexes and

labor productivity.

Keywords: Social security, Production function, Labor productivity

1 Introduction

In September 2009 the Liberal Democratic Party (LDP) in Japan lost its power in an election defeat to the Democratic Party of Japan (DPJ). As a result of this loss, the

Page 2: Did Social Security Improve Labor Productivity?

Rev Socionetwork Strat (2011) 5: 57-64 58

Social Security Policy in Japan underwent a dramatic change. The new DPJ government insisted that this policy was the means to promote economic growth and to achieve 3 percent of the nominal growth rate and 2 percent of the real growth rate as a national goal. Ohtsuka [1] described the theoretical background of this social security policy. In addition to this theoretical background, the Cabinet Office [2] performed a statistical test of this social security policy. Ohtsuka [1] used a simple macroeconomic model from the demand side. The Cabinet Office [2] used an input-output table in order to show higher productivity growth of the medical industry than the average growth rate of the rest of the economy. Both view social security as a new industry in an aged society of a developed economy.

However, no economists have analyzed social security policy from the aggregate supply side. This note statistically investigates the relationship between social security expenditure indexes and labor productivity during 1980-2009 in Japan based on the Solow type of production function.

2 Social Security Revolution

Japanese society has been in a social security revolution since September, 2009. This revolution has led to a large-scale social experiment rarely seen in history.

Evidence 1: Press Conference by Prime Minister Naoto Kan; June 8, 2010 [3] “As for social security, too, in the past it was predominantly regarded as a perennial burden that threatened to thwart economic growth. But is this true? In Sweden and many other countries, expanding social security has become a way of creating employment, and it has enabled young people to feel assured in pursuing their studies or research.1 Many aspects of social security can thus actually promote economic growth. By adopting such a perspective, I think a path will surely open up, enabling us to promote the trio of economic growth, public finance, and social security together as a cohesive whole.”

Evidence 2: Cabinet Decision, Japan, September 10, 2010 [4] “In relation to the second area, “life innovation”, we will seek to make Japan a “healthcare superpower”. Until now, social security has attracted attention mainly in terms of financial burden on public finances in the context of Japan’s declining childbirth rate and aging society, and there has been a tendency to regard social security as an impediment to economic growth. If people are worried or skeptical

1 Dr. Michael Hurd commented that the Prime Minister’s image of the Scandinavian economy could be criticized by orthodox macroeconomists for being behind the times.

Page 3: Did Social Security Improve Labor Productivity?

Rev Socionetwork Strat (2011) 5: 57-64 59

about the strength of social security - whether it is medical or nursing care, pensions or child care - they will lack the confidence to allocate their money to consumption. Meanwhile, as social security involves many sectors that bring about growth through job creation, enhancing social security can create jobs and lead to growth at the same time.”

Enforcement of social security produces a reliable society. A more reliable society consumes more goods and services. A more reliable society grows more. This idea, however, evokes harsh criticism in Japan nowadays.

3 Aggregate Demand versus Aggregate Supply

Otsuka [1] discussed aggregate demand as the key factor of the Japanese economy for pulling out of the prolonged recession after March 1991. The independent variables of this aggregate demand function YD represent the demand for private consumption C, private investment I, government expenditure G, exports, EX, and imports, IM. These variables are also functions of the GDP deflators, P, GDP, Y, and the market interest rate, i.

(1)))(()()()( YEX-IM+G+i+IY = CPY D

Ohtsuka [1] insists that the government should extend finance to medical, food, and environmental industries. Social security has a strong tie with the medical industry under the national health insurance system covering all Japanese citizens. Through this financing, private investments will increase in Japan. He also insisted that Japanese private consumption C will increase by direct government subsidiaries, which is directly related to a large effect on consumption. By this enlargement of private investment and consumption, real demand will increase and the aggregate demand function will shift upward. As a result, Japan will enjoy a higher economic gross rate and moderate inflation.

The Cabinet Office [2] used an input-output table from the demand side. This table helps explain how social security expansion promotes a new industry in an aged society of a developed economy2.

2 One question remains from the point of view of the financial market economist. When the social security expenditure increases, both firms and households will expect a tax increase and/or a national debt expansion. If they expect a tax increase, the expected value of future disposable income will decrease. Therefore, their consumption will decrease, except for inferior goods and inferior service. Obviously some part of consumption will increase, but the majority of goods and service are not inferior in a normal society.

Page 4: Did Social Security Improve Labor Productivity?

Rev Socionetwork Strat (2011) 5: 57-64 60

The explanation from the aggregate demand side is reasonable in some senses. However the aggregate supply side is still not clear. Whether a Keynesian or a Chicago School economist, an academically trained economist would not view social security as an investment. To make the economy grow, capital equipment should be increased, labor service input should be increased, and/or technological progress should be achieved. The concept of technological progress is certainly ambiguous.

The trained economist would like to be able to explain how total factor productivity could be increased when they observe additional values’ improvement not explained by any production factors. This would constitute the mathematical explanation of technical progress.

However, could implementation of social security improve total productivity of individual firms, individual industries, and/or each sector in a real sense? Figure 1 shows a representation of this kind of improvement.

Figure 1. Image of production function shift by social security

4 Production Function Approach

In the first stage, a Cobb-Douglas type of production function will be taken from the Japanese government database, 1990 to 2009. Y is the real gross domestic product and K is private capital stock under the 2000 price level from the Annual Report on the National Account of 2011[5]. L is the product of the number of employees and the annual total working hours from the Cabinet Office [2].

(2) LAKY

GDP

Page 5: Did Social Security Improve Labor Productivity?

Rev Socionetwork Strat (2011) 5: 57-64 61

The logarithmic natural transformation is used for both sides of equation (2).

(3)lnlnlnln LKAY

Stata version 10.1, StataCorp, Texas is used for the estimation of multiple linear regressions of equation (3). The estimated partial regression coefficients are statistically significant at one-percent level and where 1 . The adjusted R2 is

0.98. However, the variance-inflated factors; the VIFs of the two independent variables are very high and multicollinearity between K and L should exist. Therefore, the Solow type of production function is used for analysis under the assumption:

1 3.

(4))/()/( LKALY

The logarithmic natural transformation is used for both sides of equation (4).

(5))/ln(ln)/ln( LKALY

Stata version 10.1 is also used for the estimation of the simple regression of equation (5).

(38.91)

(6))/ln(0.463+0.479)/ln( LKLY

adj.R2=0.981, n =30, D.W. =0.3848 The estimated regression coefficient of equation (6) is statistically significant at

one-percent level derived from the t value 38.91, and the adjusted R2 is very high. However, the Durbin-Watson Ratio is less than dL=1.070 under the condition of two variables and thirty observations. Therefore, a positive serial correlation is identified for equation (6).

The Cochran-Orcutt estimation is not employed for equation (6) because the observation number of n is so small. Therefore, the Prais-Winsten transformation of the original data for equation (6) is applied to the resolution of the serial correlation of equation (6).

(15.72)

(7)*)/ln(0.465+0.483)*/ln( LKLY

adj.R2=0.942, n =30, Iteration7: rho=0.848, Transformed D.W. =1.670

Asterisks of the prefix denote transformed data along with the Prais-Winsten procedure [6]. rho=0.848 is the weight of difference in the estimator by the seventh

3 The estimated values of and are 0.464 and 0.533. Then, 997.0 . nearly equals one.

Page 6: Did Social Security Improve Labor Productivity?

Rev Socionetwork Strat (2011) 5: 57-64 62

iteration algorithm. The regression coefficient of equation (7) are statistically significant at one-percent level derived from the t value 15.72. Equation (7) shows us that the relationship between labor productivity ( LY / ) and capital stock per total working hour ( LK / ) is positive after resolution of the serial correlation problem.

After this preparation of the Solow type of production function, a shift of production function is represented by real social security per Japanese population, ( NS / ), in the first case [7], [8].

)27-2.((6.81)

(8))/ln(221.0)/ln(0.693+934.2)/ln( NSLKLY

adj.R2=0.983, n =30, D.W. =0.502, Mean VIF=83.81 The two estimated regression coefficients of equation (8) are statistically

significant at five-percent level derived from the t values 6.81 and -2.27. The adjusted R2 is very high. However, the Durbin-Watson Ratio is less than dL=1.006 under the condition of the three variables and thirty observations. Therefore, a positive serial correlation is identified for equation (8).

The Prais-Winsten transformation of the original data for equation (8) is applied to the resolution of this serial correlation again.

(-0.54)(4.19)

(9)*)/ln(640.0*)/ln(0.534+187.1)*/ln( NSLKLY

adj.R2=0.942, n =30, Iteration9: rho=0.822, Transformed D.W. =1.679

Equation (9) shows us that the relationship between labor productivity ( LY / ) and real social security per population ( NS / ) is negative after resolution of the serial

correlation problem. However, the partial regression coefficient of this social security index is not significant statistically under the t value -0.54.

We could not derive a clear relationship between this social security index and labor productivity.

In the second case, a shift of production function is represented by real social security per total working hours, ( LS / ) [6], [7].

(-2.27)(6.81)

(10))/ln(221.0)/ln(0.693+934.2)/ln( LSLKLY

adj.R2=0.983, n =30, D.W. =0.502, Mean VIF=83.94 The two estimated regression coefficients of equation (10) are statistically

significant at five-percent level derived from the t values 6.81 and -2.27. The adjusted R2 is very high. However, the Durbin-Watson Ratio is less than dL=1.006 under the condition of the three variables and thirty observations. Therefore, a positive serial correlation is identified for equation (10).

Page 7: Did Social Security Improve Labor Productivity?

Rev Socionetwork Strat (2011) 5: 57-64 63

The Prais-Winsten transformation of the original data for equation (10) is also applied to the resolution of this serial correlation.

(-0.54)(4.18)

(11)*)/ln(063.0*)/ln(0.533+179.1)*/ln( LSLKLY

adj.R2=0.942, n =30, Iteration9: rho=0.822, Transformed D.W. =1.679

Equation (11) shows us that the relationship between labor productivity ( LY / ) and real social security per total working hours ( LS / ) is negative after resolution of the

serial correlation problem. However, the partial regression coefficient of this social security index is not significant statistically under the t value -0.54.

Again, we could not derive a clear relationship between this social security index and labor productivity.

In the third case, a shift of production function is represented by real social security per private capital stock, ( KS / ) [7], [8].

(4.34)(29.22)

(12))/ln(543.0)/ln(0.531+073.1)/ln( KSLKLY

adj.R2=0.988, n =30, D.W. =0.981, Mean VIF=3.81 The two estimated regression coefficients of equation (12) are statistically

significant at one-percent level derived from the t values 29.22 and 4.34. The adjusted R2 is very high. VIF demonstrates the non-existence of multicollinearity between two independent variables.

However, the Durbin-Watson Ratio is less than dL=1.006 under the condition of the three variables and thirty observations. Therefore, a positive serial correlation is identified for equation (12).

The Prais-Winsten transformation of the original data for equation (12) is applied to the resolution of this serial correlation.

(0.62)(13.91)

(13)*)/ln(084.0*)/ln(0.479+234.0)*/ln( KSLKLY

adj.R2=0.942, n =30, Iteration11: rho=0.822, Transformed D.W. =1.712 Equation (13) shows us that the relationship between labor productivity ( LY / ) and

real social security per private capital stock ( KS / ) is positive after resolution of the

serial correlation problem. However, the partial regression coefficient of this social security index is not significant statistically under the t value 0.62.

We could not derive a clear relationship between this social security index and labor productivity, even in this case.

Page 8: Did Social Security Improve Labor Productivity?

Rev Socionetwork Strat (2011) 5: 57-64 64

5 Conclusions

In this note three kinds of indexes of social security implementation were applied to the examination of productivity assumptions concerning social security in the DPJ government. We could not derive a statistical relationship between any social security index and labor productivity.

Acknowledgements

This note is a revised version of my overview speech at the eighth International Conference of Socionetwork Strategies in December 4, 2010 at Kansai University, Osaka. I deeply appreciate the comments of Dr. Michael Hurd, RAND Corporation, Prof. Charles Yuji Horioka, Osaka University, Prof. Toshihiko Takemura, Kansai University, and two anonymous referees.

References

1 Ohtsuka, K.: Macroeconomic policy of the new administration. Economic Seminar. December 2009 and January 2010, 19-24, 2009

2 Cabinet Office: White paper on the economy and public finance, Japan. July, 2011

3 Kan, N.: Prime Minister’s statement at his first press meeting, June 8 2010, http://www.kantei.go.jp/jp/kan/statement/201006/08kaiken.html

4 Cabinet Office: On the triple economic countermeasures for yen evaluation and deflation seeking operation of new growth strategy, cabinet decision, Japan. September 10, 2010

5 Department of National Account, Economic and Social Research Institute: Cabinet office annual report on national account of 2011, Japan. August, 2011

6 Prais, S.J., Winsten, C.B.: Trend estimators and serial correlation. Cowles Commission Discussion Paper. 383, 1-26, 1954

7 Ministry of General Affairs, Japan: Labor force survey, November 2011, http://www.stat.go.jp/english/index.htm

8 Ministry of Social Welfare and Labor, Japan: Monthly labor survey statistical table, November 2011, http://www.mhlw.go.jp/toukei/itiran/eiyaku.html