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Productivity Trends in Japan -- Reviewing Recent Facts and the Prospects for the Post-COVID-19 Era --

July 28, 2022
Tomoyuki Yagi*1
Kakuho Furukawa*2
Jouchi Nakajima*3

Abstract

Labor productivity is the source of economic growth. This paper shows that the growth rate of labor productivity in Japan has remained low since the collapse of the bubble economy in the early 1990s. We summarize the background and the issues involved in improving productivity based on previous research and additional analyses provided in this paper. We also analyze developments in labor productivity during the novel coronavirus infection (COVID-19) pandemic and discuss the issues involved in achieving sustainable growth in the post-COVID-19 era.

Based on our literature review, the background to the recent stagnation in labor productivity can be summarized as follows. First, the pace of capital accumulation has generally slowed. Second, there are issues involved with the utilization of capital stock. While investment in research and development (R&D) has been increasing, it has not led to improvements in productivity. Third, Japan has issues with resource reallocation. By analyzing data on individual firms, we find that production resources are not being allocated efficiently as low-productivity firms remain in the market for a long time.

These long-standing issues which Japan has faced became apparent once again under the pandemic. Specifically, the pace of capital accumulation is further reduced, and the efficiency of resource allocation has not improved. Meanwhile, increased utilization of IT capital, such as the expansion of working from home and online consumption, is a progress in improving productivity; however, such progress has been limited in comparison to that of other countries. To improve its labor productivity and attain sustainable economic growth in the future, it will be needed for Japan to further accelerate such progress and steadily resolve the various issues which it faces.

JEL Classification
E20, E22, J24, O47

Keywords
Productivity, Intangible assets, Efficiency of utilization, Reallocation, COVID-19 pandemic.

The content of this paper was presented at the introductory session of "The Japanese Economy during and after the COVID-19 Era," the 9th conference co-hosted by the University of Tokyo's Center for Advanced Research in Finance and the Bank of Japan Research and Statistics Department (held on November 29, 2021). The authors thank Kosuke Aoki, Yuto Iwasaki, Ryo Jinnai, Sohei Kaihatsu, Seisaku Kameda, Keiichiro Kobayashi, Yoshiyuki Kurachi, Tsutomu Miyagawa, Shinichiro Nagae, Teppei Nagano, Koji Nakamura, Kenichi Sakura, Kenji Sakuta, and the staff at the Bank of Japan for their valuable comments. We are also grateful to Yuko Kobayashi, Yukio Minoura, Megumi Mochizuki, and Masato Takahashi for their assistance. All remaining errors are our own. The views expressed in this paper are those of the authors and do not necessarily reflect the official views of the Bank of Japan.

  1. *1Research and Statistics Department, Bank of Japan
    E-mail : tomoyuki.yagi@boj.or.jp
  2. *2Research and Statistics Department, Bank of Japan
    E-mail : kakuho.furukawa@boj.or.jp
  3. *3Research and Statistics Department (currently Hitotsubashi University), Bank of Japan
    E-mail : nakajima-j@ier. hit-u.ac.jp

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