Why the Japanese economy is not growing

By Bill Lewis, James Kondo, Makiko Shinoda, Naoko Shozuzawa, Yoshinori Yokoyama, Angelique Augereau, Ali Rowghani

Japan's primary challenge is to increase its capital and labor productivity. The purpose of this study is to understand the reasons for Japan's dismal economic performance in the 1990s and help policy makers prioritize reforms. To achieve this, MGI analyzed Japan's output and productivity gap relative to the US.

Objectives and Approach

The purpose of this study is to understand the reasons for Japan's dismal economic performance in the 1990s and help policy makers prioritize reforms. To achieve this, MGI analyzed Japan's output and productivity gap relative to the US.

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Synthesis and Implications

Japan's primary challenge is to increase its capital and labor productivity, especially given its aging population. Export-oriented industries generally have world-leading levels of productivity, but they employ a small proportion of the population. Most Japanese work for less productive domestic companies, which drags down the overall averages.

Aggregate Analysis

Slow growth has led to growing unemployment problems, which the government responded to with stimulus packages. But those haven't worked very well and in fact have ballooned government deficits.

Retail Sector

Low productivity in the Japanese retail sector is mainly because large-scale stores have not replaced the extremely unproductive traditional ones. Less productive traditional stores account for 55 percent of retail employment, while large-scale retailers account for just 12 percent.

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Food Processing Sector

Japan's food processing center suffers poor productivity performance due to small scale and subseqent low levels of automation.

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Residential Construction Sector

The lack of large scale developments as well as of standard designs, methods, and materials have hampered productivity in Japan's residential construction sector.

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Health Care Sector

Japanese productivity in the health care sector is lower than in the US because the average length of hospital stay is four times as long as in the US, and the usage of prescription drugs is twice as high.

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