KEO Occasional Paper No.1

Quality Changes of Labor Input in Japan


 This Paper analyzes the characteristics of Japanese economic development by focusing on the quality change in labor inputs. For that purpose, we investigate the changes of labor input in agriculture, manufacturing(including construction and mining) and service sector, and we also analyze the sources of quality change in labor inputs in manufacturing and service sectors. Decomposition of quality change was made using the Divisia indices of labor input, which is consistent with a transcendental logarithmic aggregator function. A comparison between Japan and the U.S. was made by citing some U.S. results from a comparable framework.
 The empirical results show that quality changes in labor inputs in Japan were positive through 1960-1979, and the sources of these quality changes were mainly an age effect, an education effect and the interactive effects of education-age and education-occupation. During this time, the Japanese economy was catching up with the technology of the U.S. and Western Europe. The results of this paper concerning the quality changes in labor inputs are consistent with this catch-up process. This is because the more the technology level is enhanced through the development of original technology, the more the quality change in labor input is required.
 On the other hand, the comparison between the U.S. and Japan shows that quality change in labor input in the U.S. was apparently small compared to that of Japan, especially in terms of the sex and age effects. Only the education effect turned out to have a significantly positive value; however its impact is reduced when as adjustment for occupation is made. These comparative results show that quality change in labor input has not been a contributing factor for productivity change in the U.S., while it contributed significantly in Japan.
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