Productivity and long term growth

Going for Growth 2018 - Japan note

 

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Going for Growth is the OECD flagship report analysing structural policy settings and economic performance to provide policymakers with concrete reform recommendations to boost growth and ensure that the gains are shared by all. The 2018 Interim Report reviews the main growth challenges and takes stock of reforms enacted over the past year -- in both advanced and emerging economies -- on policy priorities identified in the previous issue of Going for Growth.

Country highlights

GDP per capita remains about a quarter below the average of the most advanced OECD countries, reflecting somewhat weak labour productivity, which is held back by a marked slowdown in capital accumulation. Despite significant declines in the working-age population, a rising participation rate, notably among women, is boosting employment. Income inequality is decreasing but remains above the OECD average. The share of disposable income held by the poorest sections of the population is below the OECD average, reflecting entrenched labour market dualism and the weak redistributive effect of the tax and social welfare system on the working-age population.
Narrowing the productivity gap requires further reforms to reduce entry barriers, especially in services, and to encourage inward FDI. Enhancing the competitiveness of agriculture through the consolidation of farmland and increased entry of business-oriented farmers would facilitate Japan’s participation in comprehensive trade agreements. To mitigate the impact of a shrinking and ageing population, it is warranted to increase the employment of women by reducing disincentives to work for second earners in the tax and social security system, further expanding childcare and breaking down labour market dualism. The latter would also help lowering income inequality and boost productivity by encouraging firm-based training.

Going for Growth 2017 recommendations include:

  • Ease entry barriers for domestic and foreign firms in the services sector by extending the reforms in the Special Zones nationwide. Reduce entry barriers, while lowering restrictions on service imports and inward FDI, including those on ownership. Increase fines on violators of the Anti-Monopoly Act (AMA) and reduce exemptions from the AMA. Break down the ten regional monopolies in the electricity sector and create a competitive, nationwide market, which would also support the development of renewable energy. Follow through on the full privatisation of Japan Post, including its banking and insurance companies, as outlined in the 2005 law. 
  • Reduce producer support to agriculture and delink it from production. Promote greater efficiency through farmland consolidation by lifting obstacles to transactions and abolishing the prohibition on non-agricultural corporations owning farmland. 
  • Improve the efficiency of the tax system by setting a schedule of small annual increases in the consumption tax to raise it toward the OECD average of 20%. Continue to lower the corporate tax rate toward the OECD average of 26% and broaden its base. Broaden the personal income tax base by scaling back deductions that primarily benefit high-income households. Increase environmental taxes to achieve environmental goals and boost revenue. 
  • Strengthen policies to support the labour force participation of women through a comprehensive approach that includes further increasing the availability of affordable, high-quality childcare, reducing labour supply distortions in the tax and transfer system and breaking down labour market dualism. 
  • Reform job protection and upgrade training programmes for the unemployed by reducing effective employment protection for regular workers through better transparency about the cost of collective dismissal and reducing the role of the judicial system. Further expand social protection for non-regular workers and upgrade training programmes for them. 

Recent policy actions in these areas include:

  • A significant new plan to gradually expand the capacity of childcare centres by 320 thousand children by 2020 is being implemented. Teleworking rules have been revised to allow more flexibility and flexitime systems.
  • The draft guidelines for equal pay for equal work have been revised, aiming at improving the treatment of non-regular workers and at helping them receive judicial relief in the case of discrimination. Firms will have to explain their treatment of non-regular workers and the government will establish an Alternative Disputes Resolution to make it easier for non-regular workers to seek relief.

Japan: Latest Economic Forecast 

Japan: Latest Economic Survey

 

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