Industry Dynamics from Resource Redistribution in the Japanese Economy—Empirical research using Economic, Establishment and Enterprise Censuses of Japan

This research analyzes economic dynamism by using establishment-level panel data constructed by using the following censuses conducted by the Japanese government "the Establishment and Enterprise Census of Japan," the "Economic Census for Business Frame," and the "Economic Census for Business Activity." The analysis revealed the following.

1) The majority of employment fluctuations are due to entry and exit of business establishments. Employment fluctuations due to resource allocation among surviving establishments was limited.
2) In the past, the main source of new employment creation was the entrance of single business establishments, but in recent years the role of newly opened branches of large firms has become comparatively larger.
3) Decomposition of labor productivity growth brought about by resource reallocation shows that the average improvement of labor productivity for new entries was 92,000 yen, the effect of resource allocation among surviving establishments was 56,000 yen, but that the exit of the establishments reduced labor productivity by about 137,000 yen.
4) The majority of the improvement in labor productivity was a result of branch establishment. The effect of M & A among the firms is limited and most of the improvements do not involve changes of ownership of the establishments.
5) About 60% of the entry effect was from newly established firms.
6) Labor productivity (added value per employee) is highly skewed among business establishments, and more than half of value-added produced throughout the economy is from 20% of the top business establishments.
7) The growth rate of total factor productivity tends to be higher for industries with larger disparities in labor productivity among business establishments.
8) Most of the entry and exit effects are caused by the entry and exit of the small number of highly productive establishments. It is more prominent in non-manufacturing industries such as the accommodation and food service industry and the wholesale and retail industry.

Published: Ikeuchi, Kenta, YoungGak Kim, Hyeog Ug Kwon, and Kyoji Fukao, 2022. "Productivity dynamics in Japan and the negative exit effect," Contemporary Economic Policy, Volume40, Issue1 (2022), 204-217.
https://onlinelibrary.wiley.com/doi/10.1111/coep.12546