Productivity Disparities Between Self-Employed Workers and Employees

This paper measures the productivity disparities between self-employed workers (i.e. business owners and unpaid family workers) and employees by estimating a production function based on enterprise-level micro data from the Census of Manufactures between 1981 and 2000. As a result, we find that, compared with male employees, 1) the productivity of male self-employed workers is significantly higher, and 2) no significant disparities in productivity are found with that of female self-employed workers.

Using these results, we re-estimate the labor input indices and the labor quality indices for the manufacturing industries of the 2006 JIP database. As a result of this re-estimation, the annual growth rate of the labor quality index for the whole manufacturing industry between 1970 and 2002 becomes smaller than that of the 2006 JIP estimates by 0.43 percentage points. If we apply the productivity disparities among various types of employees estimated by Kawaguchi, et al. (2007) rather than using wages as productivity indices, the annual growth rate of the labor quality index is further reduced by 0.10 percentage points. Combining both results we get an annual 0.53 percentage points decline of the growth rate of the labor quality index, and the labor input index. This suggests that the annual growth rate of TFP in this period is underestimated by approximately by 0.4 percentage points.