Productivity and Information Communication Technology : A Comparative Analysis of Japan, the United States, and Europe

ABSTRACT

Both the excessively optimistic and unduly pessimistic views concerning IT have been overly influenced by the perspectives of the financial markets, particularly the stock market. An empirical examination of IT productivity will be useful for the purpose of gaining an objective understanding of the impact that IT is having upon society. Though the US growth rate of labor productivity declined in 2001 immediately after the burst of the Internet bubble, it immediately rose again in 2002 to a level eclipsing the rate in 2000. To give specifics, the growth rate of labor productivity decreased from 2.9% in 2000 to 1.1% in 2001, but then strode up again to 4.8% in 2002.

This report makes an international comparison of labor productivity growth rates in the late 1990s, using the categories of IT provider industry, IT user industry, and non-IT industry. The results showed relatively high growth rates in Finland, Ireland, and the US. What characterized the US was the high growth rate of the IT user industry and the especially high growth rate of the services industry. Though the EU had more or less the same growth rate in the IT provider industry as the US, it trailed behind significantly when it came to the IT user industry.

In the US, growth in the rate of labor productivity was observed from 1995 onward. The growth was driven by IT, whose lowered costs (especially computer hardware) substituted for other factors of productivity, causing capital deepening. The external effect, however, of more structure altering factors such as networks and software has still not been sufficiently demonstrated by industrial level data.

An analysis of the type of relationship, either substitute or complimentary, that IT capital has to various types of labor demand revealed that there is a clear substitute relationship between IT capital and low education labor. When the cost of IT suddenly fell, IT capital became a strong substitute for low education labor. On the other hand, IT capital had a complementary relationship to high education labor (this could be seen during the 90's in the industries of food, fibers, metal products, general machines, electronics, transport machinery, sophisticated machinery, and services). These findings demonstrate that, at least for one section of Japanese industry, the development of IT requires the presence of knowledge workers.

Finally, the resulting data has proven that the relative superiority of long-term relationship based know-how, which had been the strength of the Japanese economy, was undermined by the rapid expansion of IT in the 1990s.