Employment and Productivity Dynamics in Japan: Contribution to the OECD Dynemp/MultiProd Project and International Comparisons

International interest in industrial dynamics is growing, as it is an important factor for economic and productivity growth.. In this paper, we apply the analysis program developed by the Working Party for Industry Analysis of the Organization for Economic Cooperation and Development to Japanese data in order to analyze the business dynamics within and between industries in Japan's employment and productivity in an internationally comparable way. As the result of the analysis, we have found that the rate of new start-up formation in Japan is lower than that in foreign countries and the percentage and growth rate of young firms, which are the main drivers of employment growth, has been extremely low; although the gap between wages and productivity has been widening similarly to the trend in foreign countries, particularly in the service sector, the gap between the companies has been remarkable, and it has contracted in Japan since the Lehman shock; the efficiency of resource allocation among firms improved before the Lehman shock but declined afterwards; and the capital input of firms has tended to deviate from the optimal level and this tendency has intensified over time.