Japan-U.S. Productivity Comparisons: PPPs for Inputs and Outputs Dale W. Jorgenson, Koji Nomura, and Jon D. Samuels The Fourth Asia KLEMS Conference, July 31 – August 1, 2017 The views expressed in this paper are solely those of the authors and not necessarily those of the Research Institute of Economy, Trade and Industry (RIETI) or the U.S. Bureau of Economic Analysis (BEA).

Contents Overview Japan’s KLEMS Japan-US PPP for inputs and outputs Elementary-level PPPs for output and intermediate inputs (173 products) Industry-level PPPs for output and KLEMS US KLEMS Results Conclusion

Japan-U.S. Productivity Level Comparison Our studies since the 1980s: Jorgenson, Kuroda, and Nishimizu (1987) Jorgenson and Kuroda (1990) Kuroda and Nomura (1999) and Nomura (2004) Jorgenson and Nomura (2007): JN(2007) Jorgenson, Nomura, and Samuels (2016): JNS(2016) Improvements in this study from JNS(2016) Update KLEMS for Japan and the U.S. until 2015 Update the industry-level PPPs for KLEMS until 2015 (The 2011 benchmark PPP system is still a work in progress. This study use the 2005 benchmark PPP system developed in Nomura and Miyagawa (2015))

Japan’s KLEMS (1) Output and Intermediate Inputs SUT (Supply and Use Tables) Time-series SUT during 1955–2015 Time-series Scrap and By-products Tables during 1955–2015 47 industries (including household sector as a producer) 67 products (including the inputs of non-competitive imports and scraps) Accounts at basic prices (removal of deductible consumption taxes) Expanded SUT including non-market outputs (User costs of public capital and consumer durables following the Jorgensonian accounts) Recent improvements Sustaining consistency with the Use Table and Commodity-Flow Data in the new 2011- benchmark JSNA (based on the 2008 SNA) for the period 1994-2015, which was published as of the end of 2016 by ESRI, Cabinet Office of Japan. The industry-level energy consumption data (volumes and values) by 25 types of energy are developed in 2017, sustaining the consistency with the time-series SUT. Then product classification in our SUT was extended to 67, from 51 products.

Japan’s KLEMS (2) Capital Inputs Capital stock Times-series matrices with 169 types of assets by 47 industries during 1955–2015 169 Assets: 91 tangible assets, 50 intellectual property products (including 3 types of software, 44 own-account R&D and 2 market R&D), 4 types of inventory, 5 types of land, weapon system, and 18 household durables. Capital service Ex-post after-tax rate of return: Japan’s tax system in Nomura (2004): considerations of capital consumption allowances, income allowances and reserves, special depreciation, corporate income tax, business income tax, property taxes, acquisition taxes, debt/equity financing, and personal taxes, etc. Recent improvement Rates of depreciation: Our assumptions are replaced by the detail estimates which are newly developed at ESRI, using data of the retired assets collected in the ESRI’s Survey on Capital Expenditures and Disposals in Japan from 2006 to 2014 (more than 1.1 million data of disposed assets), in Nomura and Suga (unpublished). Sustaining some consistencies with the newly published official capital services by institutional sector in JSNA (published as of June 2017).

Japan’s KLEMS (3) Labor Inputs Number of workers, hours worked per worker, and hourly wages Time-series estimates during 1955–2015 Cross-classified by five categories: gender (2), educational attainment (4), age (11), employment status (5), and industry (46), totally 20,240 types of workers In employment status, employees were separated to 1) Regular workers, 2) Part- time workers, and 3) Casual workers, in our revision in 2014. Recent improvements Incorporation of unpublished fully-cross-classified tables of Japan’s Population Censuses in 7 benchmark years from 1980 to 2010, in Nomura and Shirane (2014).

PPPs for Inputs and Outputs –Concepts and Definitions Hard to measure output PPPs directly Price-model approach: The PPP estimates in various concepts are reconciled in the Japan-US bilateral price model. Purchaser’s Prices Demand Price of Domestic Goods： Ppd(H)i and Ppd(I)i Demand Price of Composite Goods (inc. imports): Ppc(H)i , Ppc(I)I Producer’s Prices Domestic Output Price： Pdi (inc./exc. indirect tax on products) Demand Price of Domestic Goods： Pd(H)i and Pd(I)i - where (H) and (I) represent Purchases by Household and Industry, respectively Demand Price of Composite Goods (inc. imports): Pc(H)i, Pc(I)I PPPs for output, intermediate inputs, and investment are defined: For output: Pdi (exc. indirec tax on products) For intermediate inputs: Pc(I)i For investment: Ppc(I)i

Price Model Approach: Four Paths of Price Derivation Purchaser’s Price of Composite Goods for Household Producer’s Price of Composite Goods for Household Producer’s Price of Domestic Goods for Household Output Price Purchaser’s Price of Composite Goods for Industries Producer’s Price of Composite Goods for Industries Producer’s Price of Domestic Goods for Industries Source: Nomura and Miyagawa (2015).

Price Model Approach: Four Paths of Price Derivation: Path 2 Purchaser’s Price of Composite Goods for Household Producer’s Price of Composite Goods for Household Producer’s Price of Domestic Goods for Household Output Price Purchaser’s Price of Composite Goods for Industries Producer’s Price of Composite Goods for Industries Producer’s Price of Domestic Goods for Industries Source: Nomura and Miyagawa (2015).

The 2005 US-Japan Bilateral Input-Output Table Consumption Tax Output 1…n Subsidies Indirect Tax Other Value added output Intermediate Demand Final Demand Export to JP Freight & Insurance US Duties China 1 ｎ … RoW (other 5 exogenous countries) Further revisions in the METI’s original JP-US bilateral table: Nomura, Miyagawa, Shirane, and Okamoto (2013) A revision for better harmonization on the measurement concepts between the U.S. and Japan; development of margin rates and transportation costs by products. Nomura, Miyagawa, and Okamoto (2014) A removal of the deductible consumption taxes and separation of the non-deductible consumption tax from the indirect-taxes in Japan Duties and freights and insurance are distributed among products. Imports from RoW are divided by 6 foreign countries.

Data Sources –The 2005 Benchmark PPPs Target and Classification Price Evaluation Domestic goods ／Imports 1. Eurostat-OECD FD, ICP basic heading Purchaser inc. Imports 2. Energy Prices & Taxes (IEA) Coal, crude oil, LNG, electricity, gas Inc. Imports 3. Consumer Price Comparison Survey (METI) About 100 consumer goods & services 4. Intermediate Goods Price Comparison Survey (METI) About 200 products as intermediate inputs Purchaser (Producer, partly) 5. PPP Survey Committee (METI) About 100 Products Producer Domestic 6. Transportation Service Price (MLIT) Transportation 7. Housing Construction Price (MLIT) Building & Const. Producer (Cost) 8. Foods and Restaurant Price(MAFF) Foods and Restaurant Purchase 9. Mobile Phone Price （MPT） Communication 10. Woods Products Price (MAFF) Woods Products Ppc(H)i Ppdi Ppc(H)i Ppc(I)i Pdi Pdi Pdi Ppci Ppdi Ppc(I)i Source: Nomura and Miyagawa (2015).

Elementary-Level PLI for Outputs, 2005 Source: Nomura and Miyagawa (2015). Note: It is based on 173 industry classification. The PLI is evaluated using the average exchange rate in 2005 (110.22 yen per dollar).

PLI for Inputs and Outputs, 2005 Source: Nomura and Miyagawa (2015). Note: The elementary-level estimates by 173 products are aggregated, based on the ISIC Rev.4. The PLI is evaluated using the average exchange rate in 2005 (110.22 yen per dollar).