Presence of Growth Strategy Becoming Less Visible: Priority should be on Labor Market Mobility

INUI Tomohiko Faculty Fellow, RIETI

On June 9, 2017, the Investments for the Future Strategy 2017—Reform to Realize "Super Smart Society" (Society 5.0), which is the backbone of the growth strategy of the Japanese economy, was determined by the Cabinet.

Society 5.0 is defined as a society which brings affluence to people through the society-wide advanced use of information technology (IT) to create new values and services in succession. The main policy objective of the Society 5.0 initiative is to extend the activity to promote the Fourth Industrial Revolution, which has been advocated since the second stage of the Abenomics policy from 2015 and which makes full use of robots and artificial intelligence (AI), into all industries, including medical care and transportation, and into all aspects of people's lives.

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For one thing, we should not forget the fact that Japan, whose productivity has remained stagnant since the 1990s, has been left far behind by the United States, which has been the most successful in raising productivity. The United States has achieved success by introducing IT in the information revolution that was triggered by the evolution of information and communications technology that began in the mid-1990s in the pre-Fourth Industrial Revolution period.

I compared gross domestic product (GDP) per hour worked per worker (purchasing power parity basis; base year=2012) of the two countries based on statistics prepared by the Organisation for Economic Co-operation and Development (OECD). In 1990, GDP per hour worked per worker was $42.10 for the United States and $28.10 for Japan, and in 2015, it was $62.90 and $41.40, respectively. This means that labor productivity in Japan had yet to reach the level achieved by the United States from a quarter century before.

If Japan is left behind by the United States in the Fourth Industrial Revolution again, as it was in the information revolution, Society 5.0, which is expected to trigger a society-wide innovation that promotes a rise in productivity, will end up being a pie in the sky. To avoid that, it is essential to examine the causes of Japan's failure to raise productivity and take actions based on the lesson.

I assume that one of the causes is the fact that although the importance of introducing IT was recognized, introduction was delayed due to Japan's social and economic structures.

A research group led by Hitotsubashi University Professor Kyoji Fukao pointed out the low labor market mobility is an obstacle to the introduction of IT in Japan.

The main objective of the introduction of IT by Japanese companies is rationalizing business processes and lowering costs. In particular, Japanese companies have sought to reduce the labor force of unskilled workers through the introduction of IT. However, in reality, it is difficult to dismiss workers in Japan because of a high level of employment security. As a result, introducing IT cannot be expected to lower costs, so Japanese companies have refrained from doing so.

As a side effect of companies' hesitation to introduce IT, demand has increased for non-regular workers, such as part-time workers, for whom labor cost is low and employment adjustment is easy. As neither sufficient education nor training is provided to non-regular workers, the research group also pointed out the possibility that investment in human resources has been reduced in society as a whole.

Unless the Japanese labor market is reformed, IT investment is expected to remain stagnant. Moreover, the momentum toward introducing robots and AI, which could affect labor demand more widely, is unlikely to grow.

The Investments for the Future Strategy also points out the importance of commitment to education and training intended to improve IT skills. Unless Japan develops an environment that enables companies to commit themselves to IT introduction, the potential of workers with outstanding IT skills is unlikely to be fully unlocked.

Research using corporate data in the United States reported that the tightening of the restriction on dismissal of workers has a negative impact on the efficiency of companies' resource allocation and lowers their productivity. In order to realize Society 5.0, it is necessary to look back at the principles of the initial Abenomics policy and discuss measures to promote labor market mobility.

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In addition to raising the productivity of companies and industries and accelerating innovation through the use of IT, Society 5.0 aims to extend healthy life expectancy and realize a society in which people can work as long as they remain healthy by improving individuals' health management capability through the promotion of analysis using vast amounts of accumulated medical data.

What kind of data should be provided in order to improve individuals' health management capability? As in the case of the introduction of IT by companies, unless evidence of the effectiveness of policy measures to address factors constraining investment in individuals' health management and to raise health consciousness is presented, policy objectives could fail to be achieved, resulting in the waste of resources. In order to make effective use of limited policy resources, it is necessary to formulate new policies after evaluating the ones that have been implemented in the past.

The government is devoting efforts to promoting health checkups which enable early treatment of diseases, prevent aggravation of diseases, and curb the increase in healthcare costs for the whole society. In fiscal 2008, the government introduced the specific health checkup and specific healthcare guidance system, with a particular focus on the metabolic syndrome, for all people aged 40 to 74 (who are covered by public healthcare insurance) with the aim of ensuring early detection and treatment of lifestyle diseases. However, the participation rate for the specific health checkup in fiscal 2014 was 48.6%, far below the target of 70%.

Our research group examined the effects of the specific health checkups and specific healthcare guidance on health consciousness under a project organized by RIETI. What we should keep in mind when evaluating the specific health checkup system is that the evaluation is affected by the fact that, in the first place, individuals who have a high level of health consciousness are likely to undergo the specific health checkup. Therefore, it is necessary to determine the causal effect as to whether the act of undergoing the specific health checkup has increased individuals' health consciousness or individuals have undergone the specific health checkup because of their high level of health consciousness.

To examine the causal effect, we used a quasi-experimental method (regression discontinuity design) Under this method, we observed a change in individuals' health consciousness at around the age of 40 and examined the effects of the specific health checkup by taking advantage of the fact that Japanese people become eligible for it at the age of 40. Specifically, if individuals show a significant rise (discontinuity) in their health consciousness at around this age, we assumed that their consciousness was affected by the specific health checkup. The data used in the analysis were raw data of the Comprehensive Survey of Living Conditions, which is a large-scale survey conducted by the Ministry of Health, Labour and Welfare, in 2010 and 2013.

The result of the analysis confirmed that the introduction of the specific health checkup system led to a rise in the participation rate for health checkups in general, including ordinary checkups. However, no clear effect was observed in terms of improvement in individuals' self-declared health conditions, health-related behavior (e.g., smoking habit) or healthcare expenditure. As indicated by the figure, a significant rise in the self-declared health conditions at around the age of 40 was not observed.

Figure. Self-rated Health Status (2010)
Figure. Self-rated Health Status (2010)
Note. Best=1, Worst=5.

These results are consistent with the findings of previous studies in Japan and abroad that cast doubt on the effectiveness of health checkups. Unless the government presents clear evidence of effects, the incentive for individuals busy with work or childcare to take the time to undergo specific health checkups remains weak.

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As strategic challenges for realizing Society 5.0, the following five items have been adopted: (1) extension of healthy life expectancy, (2) realization of a transportation revolution, (3) shift to the next-generation supply chain, (4) development of comfortable infrastructure and communities, and (5) Fintech. Advanced use of IT is the prerequisite for tackling all of these challenges. In order to encourage the introduction and advanced use of IT, it is essential to promote labor mobility and develop an environment that enables workers to make the right contribution in the right place.

In order to realize Society 5.0, it is necessary to first conduct scientific and objective examination of the effectiveness of policy measures and then implement measures based on the results, as mentioned above.

It is not the government but companies and people that play the leading role in achieving economic growth. If companies and people cannot understand and trust the effectiveness of policy measures, it is difficult to encourage them to change their behavior. The government holds vast amounts of data, including various administrative information. Establishing a division dedicated to the analysis of the effectiveness of policy measures through the use of such data within the government and considering efficient policy measures for which people's needs are strong is the path to realizing Society 5.0 in the public sector.

>> Original text in Japanese

* Translated by RIETI.

June 26, 2017 Nihon Keizai Shimbun

July 25, 2017