Labor Share in the Change of Japanese Industrial Structure

The investigation by E. Dietzenbacher et al. (2004) has shown the decline of the U.S. labor share for a term of 1982-1997 in spite of the rise of labor productivity. This controversial observation must be inquired to be valid for the other economy or not, and it should be explained for those dynamic causes of change. This research adopted the extended multiplicative structural decomposition analysis (SDA) by Dietzenbacher (2000 and 2004) to analyze the labor share in the change of Japanese industrial structure at 66-industry level. In this approach, the labor compensation’s share in the value-added is decomposed into five parts of Fisher-type indexes as follows; 1. Changes in the real compensation per hour worked, 2. Changes in the value-added per hour worked, 3. Changes in the labor input coefficient as the structural change in technology, 4. Changes in the intermediate input coefficient, 5. Changes in the final demands. The last two parts are known as the typical terms common to SDAs. The first two parts reflect the shift effects and the other three parts reflect the share effects. These two kinds of effects are similar to Slutsky’s equation developed in analyzing the effects of price change to differentiate two parts of the income effect and the substitution effect. This analysis adopts the database of JIDEA model version 7 constructed for the inter-industry based dynamic macroeconomic model of Japanese economy. The data in analysis was divided into two periods of time; the period of 1985-1995 and the period 1995-2005. Decomposition approach connected with value added side The simplest explanation of the structural decomposition approach to the economic change is shown in the following scheme. The achievement of the economic activity, is basically expressed in terms of the product of price and quantity; q p Y × = . 0 0 0 1 0 1 0 0 1 0 1 0 0 0 0 0 1 0 0 0 ) )( ( ) ( ) ( ) ( q p p p q q q p p q q p q p Y Y Y Y Y Y Y − − + − + − + = − + = Δ + This expression is illustrated in Figure 1, using the areas of A, B, C, and D. 2 A D C B A Y Y Y Y + + + = − +