A Comparative Study of Manufacturing Productivity in Japan and the United States

This thesis focuses on an area of importance to relative economic power in Japan and the United States: manufacturing productivity. Over the last two decades, concern in the U.S. has grown that we have fallen behind in maintaining economic competitiveness. Manufacturing productivity is often seen as being a major contributor to this decline, and Japan is most often viewed as the country that has overtaken us. Statistics show that Japanese manufacturing productivity growth rates have been significantly higher than those in the U.S. Also, a slowdown in manufacturing productivity growth, especially in the U.S., was reported in the 1970\u27s. Two issues are examined to present an analytical background. The first concerns problems in the measurement of manufacturing productivity. The measurement of productivity is complex and provides ample opportunity for the introduction of error and bias. The second concerns long term productivity trends. These trends suggest that a significant convergence effect is at work among industrialized nations that tends to equalize productivity rates over the long term. Trends in demographics and other factors are examined in analysis of manufacturing labor productivity. Immigration, the baby boom generation, and the increase in women in the workforce can explain a portion of the reported decrease in U.S. productivity growth. Evidence shows that the quality of the Japanese labor force has been growing faster than that of the U.S. Differentials in the cost of capital are shown as causing the higher observed levels of capital spending in Japan. This differential in spending has contributed greatly to the higher productivity growth rate in Japan. The high cost of capital in the U.S. is due to the low national savings rate and disincentives in the U.S. income tax system. Japan has been better able to convert technological advancement into manufacturing productivity gains by imitation and refinement of foreign technology. Japan directs more of its research and development spending towards this end, while the spending in the U.S. is more often focused on developing entirely new products and processes while neglecting the refinement needed to produce long term manufacturing productivity advantage. These different focuses have become embedded in the organization and culture of the respective countries\u27 firms. U.S. firms need to make substantial changes to achieve the effect that Japanese firms already have