new the industry origins of the us-japan productivity...

The Industry Origins of

the US-Japan

Productivity Gap

Dale W. Jorgenson (Harvard University)

Koji Nomura (Keio University)

Japan Project Meeting, June 26-27, 2007

Tokyo, Japan

Contents

Relative Prices

Industry PPPs for output and KLEM inputs

Bilateral I-O Framework

Hybrid Approach based on production-side

data and demand-side data

Economic Growth in the U.S. and Japan

Level Comparison of ALP and TFP

Industry Origins of TFP-gap

Manufacturing vs Services

Relative Prices Required for

Productivity Comparison

Industry-Level PPPs for 42 US-Japan Common Industry Classification

Gross Output: X

Capital Service: K and Capital Acquisition: A

Labor Service: L

Energy: E

Materials: M

Bilateral I-O Framework used for defining PPPs for X, E, M, and A

US-Japan 42 Common Industry

Classification

1.Agriculture, Forestry, Fishery 15.Stone, Clay, Glass 29.Air Transportation

2.Coal Mining 16.Primary Metal 30.Other Trans and Storage

3.Other Mining 17.Metal Products 31.Communications

4.Construction 18.Machinery 32.Electricity

5.Foods 19.Computers 33.Gas Supply

6.Textile 20.Communications Equipment 34.Wholesale and Retail

7.Apparel 21.Electronic Components 35.Finance and Insurance

8.Woods and Related Products 22.Other Electrical Machinery 36.Real Estate

9.Furniture and Fixture 23.Motor Vehicles 37.Education

10.Paper and Pulp 24.Other Transportation Equipment 38.Research

11.Printing and Publishing 25.Precision Instruments 39.Medical Care

12.Chemical Products 26.Misc Manufacturing 40.Other Services

13.Petroleum Refining 27.Railroad Transportation 41.Public Administration

14.Leather Products 28.Water Transportation 42.Household

Various Concepts of

Relative Prices on Commodity

Domestic Output Price Pdi

Demand Price of Domestic Goods Pd(H)i and Pd(I)i, where (H) and (I) represent Purchases by Household and Industry, respectively

Demand Price of Composite Goods (inc. imports): Pc(H)i, Pc(I)i

Demand Price of Domestic Goods Ppd(H)i and Ppd(I)i

Demand Price of Composite Goods (inc. imports): Ppc(H)i , Ppc(I)i

PPPs for X, E, M, and A Pdi used for X, Pc(I)i for E and M, and Ppc(I)i for A

Bilateral I-O Framework in

Measuring Relative Prices

. Construction of Price Model

based on Bilateral Input-Output Framework

. Describe the Linkages among Relative Prices

based on the Price Model

. One Data Sources All Relative Prices

(e.g. Ppc(H)i Pc(H)i Pd(H)i Pd(I)i Pdi Pc(I)i )

. Comparison and Check in the case that multiple

estimates will be available for one commodity

JP

US

Freight &

Insurance

Duty

RoW

output

Duty

Value added

JP US JP US

Export to

RoW output Intermediate Demand Final Demand

jUJIF

jJUIF F

JU jIF F

UJ jIF

jUJCD

jJUCD F

JU jCD FUJ jCD

jUJCD

jJUCD

F

JU jCD FUJ jCD

jJVA

jUVA

iji RJ

m

RJ xpii RJ

m

RJ Fpiji RUm

RU xpii RU

m

RU Fp

iji JJ

d

J xpe1

iji JU

d

J xpe1

ii JJ

d

J Fpe1

ii JU

d

J Fpe1

ii JR

d

J Epe1

ii J

d

J Xpe1

jj J

d

J Xpe1

iji UJ

d

U xp iji UUd

U xp ii UJd

U Fp ii UUd

U Fp ii URd

U Ep ii Ud

U Xp

jj U

d

U Xp

Bilateral Input-Output Table

between Japan and US

Linkage of Relative Prices

Domestic Price Linkages between Output and Input

Pdi=fd(Pd(H)i , Pd(I) i ) consumption demand share of domestic goods

Linkages between Domestic Price and Composite Price

Pd(H)i=fH(Pc(H)i), Pd(I)i=fI(Pc(I)i) imports share, freight and insurance, duties

Linkages between Producers Price and Purchasers Price

Ppd(H)i=fdH(Pd(H)i), Ppd(I)i=fdI(Pd(I)i)

Ppc(H)i=fcH(Pc(H)i), Ppc(I)i=fcI(Pc(I)i) wholesale and retail margin, transportation cost

Data Sources Japan-US Bilateral I-O Table in 1990 (METI)

164 commodities

Import share & consumption share by commodity

Freight & insurance rate by commoditytable)

Duties tax rate by commodity

US Use-Table in 1987 and Japan X-Table in 1990 Wholesale and retail margin rate by 164 commodity

Transportation margin rate(rail,road,water,air,other) by 164 commodity

A Multitude of Data Source for Relative Prices next page

Data for Relative Prices

Sources

Target and

Classification

Price

Evaluation

Domestic

Imports

ICP (UN) FD, ICP basic heading Purchaser inc.Import

Eurostat-OECD FD, ICP basic heading Purchaser inc.Import

Energy Prices & Taxes (IEA) Coal,raw oil,LNG,

electricity,town-gas Purchaser

Domestic

/Import

Consumer Price Comparison

Survey (METI)

94 consumer goods &

services Purchaser inc.Import

Intermediate goods Price

Comparison Survey (METI)

152Goods & 35service

as intermediate inputs

Purchaser

(Producer, partly) inc.Import

PPP Survey Committee (METI) About 100 Products Producer Domestic

Transportation Service Price

(MLIT) Transportation Producer Domestic

Housing,Construction Price

(MLIT) Building&Const. Producer(Cost) Domestic

Foods and Restaurant

Price(MAFF) Foods and Restaurant Purchase inc.Import

Mobile Phone Price MPT Communication Purchaser Domestic

Woods Products Price (MAFF) Woods Products Purchaser inc.Import

Ppc(H)i Ppc(H)i

Ppdi

Ppc(H)i

Pdi

Ppc(I)i

Pdi

Pdi

Ppdi

Ppci

Ppc(I)i

PPP for Capital Inputs

Common Classification for Asset Category 29 tangible assets

2 intangible assets: mineral exploration and software

Inventories

Land

Measurement of PPPs for capital acquisition

sold to industry

Measurement of annualization factor Detailed tax system is considered in each country

59 assets in 36 industries in the U.S.

103 assets in 47 industries in Japan

PPP for Labor Inputs

Common Classification for Labour Category industry: common 38 industries

gender: male and female

age: 6 groups (-24, 25-34, 35-44, 45-54, 55-64, 65-)

class of worker: employee

education: four groups(male), three groups(female)

Totally, 1596 categories

See Nomura and Samuels (2003)

Aggregate PPPs for KLEM: 1960-2004

Industry Origins of PPP-for-GDP Gap

in 1990 6.33

4.60

4.00

2.95

2.19

1.70

1.43

1.39

0.80

0.76

0.64

0.54

0.51

0.36

0.35

0.32

0.28

0.27

0.26

0.25

0.21

0.15

0.12

0.07

0.04

0.02

-0.01

-0.04

-0.05

-0.11

-0.17

-0.18

-0.21

-0.24

-0.31

-0.40

-0.44

-0.45

-0.78

-1.12

-1.43

-2.30

-4% -2% 0% 2% 4% 6% 8%

Industry Contribution

1.69

1.45

2.31

1.55

3.28

2.39

2.04

1.14

1.89

2.58

1.16

4.17

1.08

2.82

1.28

4.14

1.25

1.12

1.11

1.11

1.12

1.34

1.16

1.77

1.08

0.96

0.95

0.89

0.86

0.97

0.66

0.74

0.68

0.40

0.60

0.75

0.41

0.33

0.62

0.72

0.19

0 1 2 3 4 5

42.Household

40.Other Services

36.Real Estate

4.Construction

32.Electricity

5.Foods

1.Agriculture, Forestry, Fishery

34.Wholesale and Retail

11.Printing and Publishing

3.Other Mining

37.Education

13.Petroleum Refining

41.Public Administration

2.Coal Mining

9.Furniture and Fixture

17.Metal Products

33.Gas Supply

26.Misc Manufacturing

30.Other Trans and Storage

31.Communications

12.Chemical Products

16.Primary Metal

6.Textile

7.Apparel

14.Leather Products

20.Communications Equipment

38.Research

25.Precision Instruments

8.Woods and Related Products

10.Paper and Pulp

35.Finance and Insurance

29.Air Transportation

15.Stone, Clay, Glass

27.Railroad Transportation

28.Water Transportation

24.Other Transportation Equipment

22.Other Electrical Machinery

19.Computers

21.Electronic Components

18.Machinery

39.Medical Care

23.Motor Vehicles

Relative Price for Value Added

PPP for GDP-output based=181.0

PPP for GDP-expenditure based=189.2 (OECD)

Exchanger rate=144.8

Economic Growth in the U.S. and Japan 1960-73 1973-90 1990-95 95-2000 2000-04 1960-2004

Value Added 3.90 2.83 2.35 4.12 2.56 3.21

Capital Input 1.81 1.59 1.19 2.14 1.46 1.66

IT Capital 0.21 0.41 0.49 0.97 0.63 0.44

Non-IT Capital 1.60 1.18 0.70 1.16 0.83 1.22

Labor Input 1.29 1.08 0.81 1.29 -0.17 1.02

Total Factor Productivity 0.81 0.17 0.35 0.69 1.27 0.54

Agriculture 0.00 0.13 0.03 0.07 0.10 0.07

IT-manufacturing 0.09 0.20 0.27 0.48 0.04 0.19

Motor Vehicle 0.02 0.00 -0.01 0.02 0.06 0.01

Other manufacturing 0.52 -0.02 0.11 0.21 0.04 0.19

Communications 0.01 0.06 -0.01 -0.04 0.07 0.03

Trade 0.17 0.15 0.07 0.15 0.51 0.18

Finance & Insurance -0.05 0.01 0.04 0.11 0.30 0.03

Other services 0.04 -0.37 -0.14 -0.30 0.15 -0.17

Value Added 10.00 4.50 1.31 1.31 1.14 5.10

Capital Input 4.95 2.19 1.93 1.02 0.72 2.71

IT Capital 0.22 0.26 0.27 0.32 0.37 0.27

Non-IT Capital 4.72 1.93 1.66 0.70 0.35 2.44

Labor Input 1.75 1.12 -0.16 -0.19 -0.15 0.90

Total Factor Productivity 3.30 1.18 -0.46 0.48 0.57 1.48

Agriculture 0.20 0.00 0.06 -0.01 -0.04 0.06

IT-manufacturing 0.17 0.21 0.09 0.42 0.35 0.22

Motor Vehicle 0.28 0.13 0.00 0.02 0.11 0.14

Other manufacturing 1.78 0.41 -0.33 0.17 0.08 0.68

Communications 0.07 0.05 0.07 0.12 0.08 0.07

Trade 0.94 0.28 0.01 -0.13 -0.03 0.37

Finance & Insurance 0.23 0.10 -0.22 0.15 0.04 0.10

Other services -0.36 0.01 -0.14 -0.26 -0.03 -0.15

United States

Japan

Note: All figures are average annual growth rates.Value added is aggregated from industry GDPs evaluated at the factor cost.

Changes in Contribution of Industry TFP to

Economic Growth: 2000-2004 less 1995-2000

-0.18

0.11

-0.11

-0.03

0.41

0.00

-0.20

0.00

0.09

0.08

-0.03

0.02

-0.01

0.03

0.00

0.01

-0.02

0.00

0.00

0.00

0.01

0.00

0.00

0.00

-0.01

0.00

0.00

-0.01

-0.01

0.00

0.01

0.01

-0.04

0.00

-0.02

-0.09

0.06

-0.06

0.05

0.07

0.07

-0.11

-0.4 -0.2 0.0 0.2 0.4 0.6

Japan

0.45

0.36

0.19

0.11

0.08

0.07

0.05

0.04

0.04

0.04

0.03

0.03

0.02

0.02

0.01

0.01

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

-0.01

-0.01

-0.01

-0.01

-0.01

-0.02

-0.02

-0.03

-0.06

-0.06

-0.08

-0.09

-0.14

-0.17

-0.25

-0.4 -0.2 0.0 0.2 0.4 0.6

40.Other Services



31.Communications

39.Medical Care


36.Real Estate


23.Motor Vehicles



18.Machinery

3.Other Mining







38.Research


42.Household


37.Education

6.Textile

2.Coal Mining

14.Leather Products

10.Paper and Pulp


7.Apparel




33.Gas Supply

17.Metal Products

16.Primary Metal

5.Foods


32.Electricity

4.Construction

19.Computers


United States

U.S.-Japan Labor Productivity Gap

-1.6

-1.4

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

1960 1965 1970 1975 1980 1985 1990 1995 2000

TFP Labor Quality

Non-IT Capital Deepening IT Capital Deepening

Labor Productivity Gap

log (relative productivity level:

1960 1973 1980 1990 1995 2000 2004

Labor Productivity 21.2 42.8 52.5 66.6 69.9 69.7 65.7

U.S.-Japan TFP Gap

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

1960 1965 1970 1975 1980 1985 1990 1995 2000

Non Manufacturing Motor Vehicle

Non-IT Mnf.(exc. Vehicle) IT Manufacturing

TFP Gap for the Whole Economy TFP Gap for Manufacturing

log (relative productivity level:

1960 1973 1980 1990 1995 2000 2004

Total Factor Productivity 52.4 72.5 75.4 86.1 82.6 81.7 79.5

Industry Origins

of TFP Gap

in 1990

1.98

0.90

0.89

0.80

0.45

0.40

0.35

0.34

0.29

0.28

0.24

0.21

0.07

0.06

0.05

0.04

0.02

0.00

0.00

-0.02

-0.05

-0.08

-0.17

-0.17

-0.18

-0.21

-0.21

-0.32

-0.36

-0.36

-0.39

-0.43

-0.54

-0.62

-0.98

-0.98

-1.09

-1.58

-1.64

-2.21

-3.13

-6.78

-8 -6 -4 -2 0 2


1.40

1.16

1.11

1.60 1.07

1.31

1.09

1.22

1.33

1.05

1.24

1.28

1.03

1.01

1.14

1.02

1.00

1.00

1.00

0.97

0.78

0.93

0.89

0.97

0.95

0.84

0.85

0.61

0.90

0.21

0.62

0.84

0.71

0.82

0.68

0.79

0.76

0.60

0.91

0.71

0.81

0.73

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6

23.Motor Vehicles

18.Machinery



39.Medical Care

19.Computers




36.Real Estate



10.Paper and Pulp

16.Primary Metal

38.Research


37.Education


42.Household


14.Leather Products




31.Communications

7.Apparel

6.Textile

33.Gas Supply


2.Coal Mining



3.Other Mining

17.Metal Products




32.Electricity


5.Foods

4.Construction

40.Other Services

TFP gap

Industry Origins

of TFP Gap

in 2004

1.79

1.62

0.83

0.57

0.34

0.32

0.26

0.23

0.15

0.10

0.10

0.03

0.01

0.00

0.00

-0.04

-0.05

-0.06

-0.08

-0.10

-0.12

-0.14

-0.16

-0.18

-0.19

-0.20

-0.33

-0.34

-0.35

-0.48

-0.61

-0.77

-0.80

-0.87

-1.08

-1.37

-1.46

-1.49

-1.86

-2.21

-5.18

-5.76

-7 -5 -3 -1 1


1.40

1.41

1.18

1.29

1.11 1.49

1.40

1.28

1.05

1.00

1.05

0.99

1.02

1.00

1.00

0.92

0.63

0.92

0.89

0.76

0.93

0.91

0.79

0.18

0.67

0.75

0.90

0.92

0.78

0.45

0.58

0.74

0.91

0.66

0.61

0.66

0.55

0.62

0.82

0.69

0.82

0.71

0.0 0.5 1.0 1.5 2.0

23.Motor Vehicles

31.Communications

36.Real Estate






37.Education

39.Medical Care


18.Machinery



42.Household


14.Leather Products

33.Gas Supply


19.Computers


10.Paper and Pulp

6.Textile

2.Coal Mining

7.Apparel

38.Research

16.Primary Metal




3.Other Mining




17.Metal Products


32.Electricity


4.Construction

5.Foods

40.Other Services


TFP gap

TFP Level Comparison during 1960-2004 (1)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1960 1970 1980 1990 2000

18.Machinery

0

5

10

15

20

25

30

35

1960 1970 1980 1990 2000

21. Electronic Components

0

10

20

30

40

50

60

70

80

90

100

1960 1970 1980 1990 2000

19.Computers

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1960 1970 1980 1990 2000

4.Construction

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1960 1970 1980 1990 2000


(US)

(Japan)

(Productitivy Level in the U.S. in 1960=1.0)

0.0

0.5

1.0

1.5

2.0

2.5

1960 1970 1980 1990 2000


TFP Level Comparison during 1960-2004 (2)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

1960 1970 1980 1990 2000

23.Motor Vehicles

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

1960 1970 1980 1990 2000

34. Wholesale and Retail

0.0

0.5

1.0

1.5

2.0

2.5

1960 1970 1980 1990 2000

31.Communications

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1960 1970 1980 1990 2000


0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1960 1970 1980 1990 2000

22. Other Electrical Machinery

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

1960 1970 1980 1990 2000

40. Other Service

Conclusion Labor Productivity Gap

65.7 in 2004

Lower TFP accounts for 57%

Lower Non-IT-capital deepening accounts for 37%

TFP Gap Period of Convergence: 1960-1990

Period of Divergence: 1990-2004 IT producing Industries during the late 1990s

IT using industries after 2000

79.5 in 2004

Wholesale and Retail Trade emerged as the largest contributor to this gap, accounting for 25% of the lower TFP of the Japanese economy

new the industry origins of the us-japan productivity...

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