Productivity and long term growth

Going for Growth 2016: Japan

 

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‌The productivity level in services relative to manufacturing is particularly low in Japan, dragging down economy-wide labour productivity, which is significantly below the average of the upper-half of OECD countries. Therefore, reducing regulatory barriers to competition and innovation in network industries as well as professional services and retail distribution remains a key reform priority. Another notable challenge is rapid population ageing. In a context of growing labour force shortages, boosting the full-time labour participation of women has been high on the policy agenda. However, this requires comprehensive reforms that not only remove institutional disincentives for full-time labour participation but also promote a working environment that can help to reconcile work and family responsibilities.

1. Business sector services cover distributive trade, repair, accommodation, food and transport services; information and communication; financial and insurance; professional, scientific and support activities. Data refer to 2013 for Belgium, Denmark, France, Israel, Italy, Japan, Korea, Poland, Portugal, Slovak Republic, Spain, Switzerland, the United States; 2012 for Australia and the United Kingdom. The observation on business sector services in Japan is an estimate based on National Accounts for 2013 and the 2014 JIP Database. The data on manufacturing for Israel include mining and quarrying while the data on business sector services include real estate activity.

Source:  OECD National Accounts Database, Cabinet Office (Japan) 2013 National Accounts, Central Bureau of Statistics (Israel) "Product, Productivity, Compensation of Employed Persons and Capital Return 2005-2013".

Previous Going for Growth recommendations include:

  • Easing entry barriers for domestic and foreign firms in the services sector by extending the reforms in the Special Zones nationwide; by relaxing entry barriers while reducing restrictions on service imports and inward FDI, including those on ownership; by increasing fines on violators of the Anti-Monopoly Act (AMA) and reducing exemptions from the AMA; by implementing electricity market reform, including the unbundling of generation and transmission; and by following through on the full privatisation of Japan Post Group, including its banking and insurance companies, as outlined in the revised 2012 law.
  • Reducing producer support to agriculture and delinking it from production, while facilitating the entry of business-oriented farmers, in part to promote farm consolidation.
  • Improving the efficiency of the tax system by carrying out the planned increase in the consumption tax rate to 10% in 2017, while maintaining a single rate to avoid the distortions and poor targeting associated with multiple rates; and by implementing the announced cut in the corporate income tax rate, while broadening the tax bases for both the personal and corporate income taxes.
  • Encouraging women’s labour force participation through a comprehensive approach that includes increasing the availability of affordable, high-quality childcare, reducing labour supply distortions in the tax/benefit system and addressing labour market duality.
  • Reforming employment protection and upgrading training programmes with a view to reduce effective employment protection for regular workers by increasing transparency about the cost of collective dismissal and reducing the role of the judicial system, while expanding social protection for non-regular workers and upgrading training programmes for them.

 

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Recent policy actions in these areas include:

  • A law ensuring the neutrality of the electricity transmission and distribution sectors with regard to generation and retail through legal unbundling was passed.
  • The Agricultural Co-operative system was reformed and some of the limits on corporate farm ownership were relaxed, steps that may promote competition and boost productivity in the agriculture sector.
  • The government set up a goal to increase the number of childcare places in order to accommodate about 0.5 million children by March 2018. Also, after-school childcare centres are being created to provide care for 0.3 million children by March 2020.

The report also discusses the possible impact of structural reforms on other policy objectives (fiscal consolidation, narrowing current account imbalances and reducing income inequality). In the case of Japan, breaking down labour market duality would boost productivity, in particular by encouraging firm-based training, and reduce income inequality.

Economic Policy Reforms 2016 

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