Nber Japan Project 07 0626

The Industry Origins of The Industry Origins of the US-Japan the US-Japan Productivity GapProductivity Gap

Dale W. Jorgenson (Harvard University)

Koji Nomura (Keio University)

Japan Project Meeting, June 26-27, 2007 Tokyo, Japan

ContentsContents Relative PricesRelative Prices

Industry PPPs for output and KLEM inputsIndustry PPPs for output and KLEM inputs Bilateral I-O FrameworkBilateral I-O Framework Hybrid Approach based on production-side Hybrid Approach based on production-side

data and demand-side datadata and demand-side data

Economic Growth in the U.S. and JapanEconomic Growth in the U.S. and Japan Level Comparison of ALP and TFPLevel Comparison of ALP and TFP Industry Origins of TFP-gapIndustry Origins of TFP-gap

Manufacturing vs ServicesManufacturing vs Services

Relative Prices Required for Relative Prices Required for Productivity ComparisonProductivity Comparison Industry-Level PPPs forIndustry-Level PPPs for

42 US-Japan Common Industry Classification42 US-Japan Common Industry Classification Gross Output: XGross Output: X Capital Service: K and Capital Acquisition: ACapital Service: K and Capital Acquisition: A Labor Service: LLabor Service: L Energy: EEnergy: E Materials: MMaterials: M

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

US-Japan 42 Common Industry US-Japan 42 Common Industry ClassificationClassification

42.Household28.Water Transportation14.Leather Products

41.Public Administration27.Railroad Transportation13.Petroleum Refining

40.Other Services26.Misc Manufacturing12.Chemical Products

39.Medical Care25.Precision Instruments11.Printing and Publishing

38.Research24.Other Transportation Equipment10.Paper and Pulp

37.Education23.Motor Vehicles9.Furniture and Fixture

36.Real Estate22.Other Electrical Machinery8.Woods and Related Products

35.Finance and Insurance21.Electronic Components7.Apparel

34.Wholesale and Retail20.Communications Equipment6.Textile

33.Gas Supply19.Computers5.Foods

32.Electricity18.Machinery4.Construction

31.Communications17.Metal Products3.Other Mining

30.Other Trans and Storage 16.Primary Metal2.Coal Mining

29.Air Transportation15.Stone, Clay, Glass1.Agriculture, Forestry, Fishery

Various Concepts of Various Concepts of Relative Prices on CommodityRelative Prices on Commodity Producer’s PricesProducer’s Prices

Domestic Output Price ： PPdidi Demand Price of Domestic Goods ： PPd(H)i andd(H)i and PPd(I)i, d(I)i,

where (H) and (I) represent Purchases by Household and Industry, respectively

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

Purchaser’s Prices Purchaser’s Prices Demand Price of Domestic Goods ： PPpd(H)i andpd(H)i and PPpd(I)ipd(I)i Demand Price of Composite Goods (inc. imports): PPpc(H)i pc(H)i ,

PPpc(I)ipc(I)i

PPPs for X, E, M, and APPPs for X, E, M, and A PPdi used for X, di used for X, PPc(I)i for E and M, and c(I)i for E and M, and PPpc(I)i for A pc(I)i for A

Bilateral I-O Framework in Bilateral I-O Framework in Measuring Relative PricesMeasuring Relative Prices

ⅠⅠ. Construction of Price Model . Construction of Price Model based on Bilateral Input-Output Frameworkbased on Bilateral Input-Output Framework

ⅡⅡ. Describe the Linkages among Relative Prices. Describe the Linkages among Relative Pricesbased on the Price Modelbased on the Price Model

ⅢⅢ. One Data Sources All Relative Prices⇒. One Data Sources All Relative Prices⇒

(e.g. (e.g. PPpc(H)pc(H)i i ⇒ ⇒ PPc(H)c(H)

i i ⇒ ⇒ PPd(H)d(H)ii ＝＝ PPd(I)d(I)

i i ⇒ ⇒ PPddi i ⇒ ⇒ PPc(I)c(I)

ii ))

ⅣⅣ. Comparison and Check in the case that multiple . Comparison and Check in the case that multiple estimates will be available for one commodityestimates will be available for one commodity

JPJP

USUSFreight &Freight &

InsuranceInsuranceDutyDuty

RoWRoW

outputoutput

DutyDuty

Value addedValue added

JPJP USUS JPJP USUSExport to Export to

RoWRoW outputoutputIntermediate DemandIntermediate Demand Final DemandFinal Demand

jUJIFjJUIF F

JU jIF F

UJ jIF

jUJCDjJUCD F

JU jCD F

UJ jCD

jUJCDjJUCD F

JU jCD F

UJ jCD

jJVA

jUVA

iji RJmRJ xp

ii RJmRJ Fp

iji RUmRU xp

ii RUmRU Fp

iji JJdJ xpe

1iji JU

dJ xpe

1ii JJ

dJ Fpe

1ii JU

dJ Fpe

1ii JR

dJ Epe

1ii J

dJ Xpe

1

jj JdJ Xpe

1

iji UJdU xp

iji UUdU xp

ii UJdU Fp

ii UUdU Fp

ii URdU Ep

ii UdU Xp

jj UdU Xp

Bilateral Input-Output TableBilateral Input-Output Table between Japan and US between Japan and US

Linkage of Relative PricesLinkage of Relative Prices

Domestic Price Linkages between Output and InputDomestic 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 Linkages between Domestic Price and Composite PricePrice 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 Linkages between Producers Price and Purchasers

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

164 commodities164 commodities Import share & consumption share by commodityImport share & consumption share by commodity Freight & insurance rate Freight & insurance rate by commodityby commodity(←supplementary (←supplementary

table)table) Duties tax rate Duties tax rate byby commoditycommodity (←supplementary table) (←supplementary table)

US Use-Table in 1987 and Japan X-Table in 1990US Use-Table in 1987 and Japan X-Table in 1990 Wholesale and retail margin rate by 164 commodity Wholesale and retail margin rate by 164 commodity Transportation margin rate(rail,road,water,air,other) by 164 Transportation margin rate(rail,road,water,air,other) by 164

commoditycommodity A Multitude of Data Source for Relative PricesA Multitude of Data Source for Relative Prices

next page next page

Data for Relative PricesData for Relative Prices

SourcesTarget 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

PurchaserDomestic/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

PPpc(H)pc(H)ii

PPpc(H)pc(H)ii

PPpdpdii

PPpc(H)pc(H)ii

PPddii

PPpc(I)pc(I)ii

PPddii

PPddii

PPpdpdii

PPpcpcii

PPpc(I)pc(I)ii

PPP for Capital InputsPPP for Capital Inputs Common Classification for Asset CategoryCommon Classification for Asset Category

29 tangible assets29 tangible assets 2 intangible assets: mineral exploration and software2 intangible assets: mineral exploration and software InventoriesInventories LandLand

Measurement of PPPs for capital acquisitionMeasurement of PPPs for capital acquisition Based on purchaser’s price PPP for composite goods sold Based on purchaser’s price PPP for composite goods sold

to industry to industry

Measurement of annualization factorMeasurement of annualization factor Detailed tax system is considered in each countryDetailed tax system is considered in each country 59 assets in 36 industries in the U.S. 59 assets in 36 industries in the U.S. 103 assets in 47 industries in Japan103 assets in 47 industries in Japan

PPP for Labor InputsPPP for Labor Inputs

Common Classification for Labour CategoryCommon Classification for Labour Category industry: common 38 industriesindustry: common 38 industries gender: male and femalegender: male and female age: 6 groups (-24, 25-34, 35-44, 45-54, 55-64, 65-)age: 6 groups (-24, 25-34, 35-44, 45-54, 55-64, 65-) class of worker: employeeclass of worker: employee education: four groups(male), three groups(female)education: four groups(male), three groups(female) Totally, 1596 categoriesTotally, 1596 categories

See Nomura and Samuels (2003)See Nomura and Samuels (2003)

Aggregate PPPs for KLEM: 1960-2004Aggregate PPPs for KLEM: 1960-2004

Industry Origins of PPP-for-GDP Gap Industry Origins of PPP-for-GDP Gap in 1990in 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 PPP for GDP-output based=181.0based=181.0

PPP for GDP-expenditure PPP for GDP-expenditure based=189.2 (OECD)based=189.2 (OECD)

Exchanger rate=144.8Exchanger rate=144.8

Economic Growth in the U.S. and JapanEconomic Growth in the U.S. and Japan1960-73 1973-90 1990-95 95-2000 2000-04 1960-2004

Value Added 3.90 2.83 2.35 4.12 2.56 3.21Capital 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 0.44Non-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 1.02Total 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 0.07IT-manufacturing 0.09 0.20 0.27 0.48 0.04 0.19Motor Vehicle 0.02 0.00 -0.01 0.02 0.06 0.01Other manufacturing 0.52 -0.02 0.11 0.21 0.04 0.19Communications 0.01 0.06 -0.01 -0.04 0.07 0.03Trade 0.17 0.15 0.07 0.15 0.51 0.18Finance & Insurance -0.05 0.01 0.04 0.11 0.30 0.03Other 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 5.10Capital 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 0.27Non-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 0.90Total 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 0.06IT-manufacturing 0.17 0.21 0.09 0.42 0.35 0.22Motor Vehicle 0.28 0.13 0.00 0.02 0.11 0.14Other manufacturing 1.78 0.41 -0.33 0.17 0.08 0.68Communications 0.07 0.05 0.07 0.12 0.08 0.07Trade 0.94 0.28 0.01 -0.13 -0.03 0.37Finance & Insurance 0.23 0.10 -0.22 0.15 0.04 0.10Other 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 Changes in Contribution of Industry TFP to Economic Growth:Economic Growth:2000-2004 less 1995-20002000-2004 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 GapU.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 2004Labor Productivity 21.2 42.8 52.5 66.6 69.9 69.7 65.7

U.S.-Japan TFP GapU.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 2004Total Factor Productivity

52.4 72.5 75.4 86.1 82.6 81.7 79.5

Industry Origins Industry Origins of TFP Gap of TFP Gap in 1990in 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 Industry Origins of TFP Gap of TFP Gap in 2004in 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 TFP Level Comparison during 1960-2004 (1)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 TFP Level Comparison during 1960-2004 (2)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

ConclusionConclusion Labor Productivity GapLabor Productivity Gap

65.7 in 200465.7 in 2004 Lower TFP accounts for 57%Lower TFP accounts for 57% Lower Non-IT-capital deepening accounts for 37%Lower Non-IT-capital deepening accounts for 37%

TFP GapTFP Gap Period of Convergence: 1960-1990Period of Convergence: 1960-1990 Period of Divergence: 1990-2004Period of Divergence: 1990-2004

IT producing Industries during the late 1990sIT producing Industries during the late 1990s IT using industries after 2000IT using industries after 2000

79.5 in 200479.5 in 2004 Wholesale and Retail Trade emerged as the largest Wholesale and Retail Trade emerged as the largest

contributor to this gap, accounting for 25% of the lower contributor to this gap, accounting for 25% of the lower TFP of the Japanese economyTFP of the Japanese economy

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