Progress of Digitalization and Industrial Revitalization: Employment and productivity dynamics of firms in Japan

Entry and exit of firms and changes in employment and productivity are expected to bring about an increase in national economic growth and productivity. However, there is concern that the increasing importance of digital technology with its network externalities will make it more difficult for new firms to grow and overcome the advantages of incumbents, widening the productivity gap among firms. On the other hand, in industries where new technologies, such as digital technologies, are advancing rapidly, it is possible that there will be increasing activity of new firms entering and exiting the market. In this paper, we measure the entry and exit, job creation and destruction, and inter-firm productivity gap within each industry in Japan and discuss the relationship between the progress of digitalization and the metabolism within industries, comparing results with those of European countries. Unlike the results for European countries, the intensity of intangible assets, including digital assets, did not increase substantially in Japan, nor did the productivity gap between firms within industries increase significantly. By examining the differences from European countries, we explore the factors behind Japan's sluggish productivity growth.