The Influence of Technological Progress on Labor Productivity

No.28
March 1998
Fujitsu Research Institute
Japan Center for Economic Research

1. Continued growth of the Japanese economy through the 21st Century is synonymous with increasing labor productivity. Increasing the rate of technological progress is an important and indispensable precondition for realizing this end.
2. It is a common phenomenon amongst industrialized nations that, as economies grow, the value of personnel (labor productivity) increases while the value of capital (capital productivity) declines relatively. For industries with strong international competitiveness, however, the decline in capital productivity is relatively modest. The greatest reason for this lies in the high rate of technological progress resulting from active investment in R&D.
3. Measuring the size of capital investment has various difficulties. Even when correcting for capital stock in the purchase of investment services-i.e. the lease and rental of capital equipment-the above conclusion does not change. In this regard, however, according to the amount of lease and rental, there is a significant difference in the level of capital productivity decline before correcting for capital stock.
4. Though there is a positive relationship between a high rate of technological progress and industries with a high level of R&D investment, this relation is not so strong as to be called conclusive. This is because the factors that influence technological progress are extremely diverse.
5. The source of innovation itself-the most pure form of technological advancement-occurs within the business functions of each sector of users, makers, and suppliers. The distribution of such innovation differs according to sector and technological field, but all share the common need for a "cumulative research effect" between suppliers and suppliers, users and users, or suppliers and users.
6. Though R&D investment does not necessarily breed technological progress, technological progress requires R&D investment. In other words, R&D investment alone is not a sufficient condition for technological progress, but it is a necessary one.

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