Employment and Productivity Dynamics and Patent Applications Related to the Fourth Industrial Revolution

In recent years, the development of new digital-related technologies such as artificial intelligence (AI) and Internet-of Things (IoT) and their industrial applications have been attracting attention. These technological developments collectively are called the "Fourth Industrial Revolution" which is set to bring about major changes in industrial structure. On the other hand, previous research using national / industrial level data has pointed out that progress in digitization widens the productivity gap between companies and reduces the dynamics of the market. Therefore, this research analyzes the relationship between the development of technologies related to the Fourth Industrial Revolution such as artificial intelligence and IoT and market dynamics using Japanese firm-level micro datasets. The patent data is combined with the Basic Survey of Japanese Business Structure and Activities, Census of Manufacture, Economic Census for Business Frame, Economic Census for Business Activity and Establishment and Enterprise Census of Japan to build firm-level panel data and to examine how the research and development activities related to the Fourth Industrial Revolution, such as artificial intelligence and IoT, are associated with the productivity and employment growth of business establishments and firms, and discuss the policy implications. The results of this study show that the development of technologies related to the Fourth Industrial Revolution such as AI and IoT are associated with the dynamics of productivity and employment in firms. The development of AI-related technologies has particularly benefited large firms, with limited benefits to small and medium-sized firms.