Journal of Applied Input-Output Analysis, Vol.2, No.2, 1995

A Comparison of Cost Structures in Japan and the U.S.
Using Input-Output Tables1
By

Kiyoshi Fujikawa*, Hiroshi Izumi* and Carlo Milana**

Abstract

This paper attempts to explain why prices are systematically higher in Japan than in the
U.S. It is aimed at measuring direct and indirect productivity and input-price componentsof sectorial costs of production in Japan relative to the U.S. and presenting a methodology
for a bilateral comparison of cost structure by using harmonized input-output tables andPurchasing Power Parity data. The empirical application reveals new elements that explain
the difference in costs of production between Japan and the U.S. The main finding isthat only in a few industries was the "direct" cost efficiency higher in Japan than in the
U.S. during 1985, but even in these industries the "indirect" productivity component wassignificantly lower than that in the U.S.

1.

Introduction

International competitiveness and trade disequilibrium between Japan and the United States
have been thoroughly examined by many empirical studies. Among these, the path-breaking
works carried out by Dale W. Jorgenson and his associates have established a methodology which
has become standard in the economic literature aimed at accounting for intercountry differencesin the rates of change and the levels of sectorial costs of production. The methodology was
originated by Jorgenson and Nishimizu (1978), who established a theoretical framework fora bilateral comparison of aggregate economic growth in Japan and the U.S. Jorgenson andNishimizu (1981) extended this analysis at the industry level for the first time by measuring therelative sectorial values of production and relative productivity. The most recent studies in thisfield are those made by Jorgenson and Kuroda (1990), Jorgenson, Sakuramoto, Yoshioka, andKuroda (1990), Fuss and Waverman (1991), Nakamura (1991), Jorgenson and Kuroda (1992),
and Denny, Bernstein, Fuss, Nakamura, and Waverman (1992)2. These studies compare costsof production by taking into account the direct input cost components.

The unit cost of an industry's output in a country relative to the unit cost of another country
is explained by decomposing it into differences in primary and intermediate input prices andproductivity levels in the same industry of the two countries. The output and input prices,
Manuscript received January 13, 1995. Revised August 8, 1995.

* Osaka University of Economics** ISPE (Institute of Studies for Economic Planning), Italy.

JAn earlier version of this paper has been prepared for the 1994 Conference of the Pan Pacific Association of Input-Output Studies, Tokyo, 12-13 November 1994. We are deeply grateful to Masahiro Kuroda forhaving provided us with the data on Japan-U.S. relative prices of outputs and inputs and to Ichiro Tokutsu
and an anonymous referee for their constructive comments. This research has been financially supported bv
Osaka University of Economics and the Italian National Research Council (CNR) within the Strategic Project"Technological Change and Industrial Growth".

2See Jorgenson (1988) for an overview of previous analyses. A more descriptive analysis is provided by van

Art and Pilat (1993) and Pilat and van Art (1994). Among other studies that are not concerned directly withthe analysis of relative cost and productivity levels but focus their attention on the international comparison of
input substitution and technical change, see the recent works made by Boskin and Lau (1992) and Saito andTokutsu (1992)(1993).

2 Journal of Applied Input-Output Analysis, Vol.2, No.2, 1995

relative to those in the reference country, are measured by using sectorial Purchasing Power

Parities (PPP). The intercountry difference in sectorial costs of production is accounted forwith a good degree of approximation by postulating a sufficiently general functional form of
the production or cost function. In the above-mentioned studies this function has a Translog

functional form, which is applied either directly after having been econometrically estimated or

implicitly by using Tornqvist index numbers. Diewert (1976), in fact, showed that, when there
is no variation in technology, there is an exact correspondence between Translog production (orcost) functions and aggregating Tornqvist index numbers of input quantities (or prices). Variations in productivity may be represented by the "implicit" Tornqvist index number obtainedby the difference between production (or cost) variations and the aggregating Tornqvist index

numbers of differences in input quantities (or prices) 3.
The novelty of this paper is the extension of the above-mentioned methodology to the input-

output framework, which permits us to analyze, not only the direct, but also the indirect input
components of costs of production which are incorporated in the intermediate inputs.

Morespecifically, whereas the studies mentioned above have left the costs of intermediate inputs"unexplained," the techniques of input-output analysis permits us to decompose these costs

into indirect input price and technological components. The distinction of the analyses basedon direct costs of production from those based on direct and indirect costs is related, respectively,
to the concepts of "industry" and the so-called "vertically integrated sector". As we shall see,both concepts are familiar in 1-0 analysis and have always been employed in the economic

literature, although their definition has seldom been explicitly established4.
Moreover, by adopting the approximating Translog functional form of sectorial cost functions,

we are able to consider a modified Leontief price equation system, where the physical inputoutput coefficients may vary according to this particular functional form. Since the Translog costfunction includes the Cobb-Douglas cost function as a special case, our input-output equations
represent a generalization of Klein's (1952-53) reformulation of Leontief's input-output system.

The comparative study of cost structure was carried out on the input-output tables for Japanand the U.S., which were harmonized by adopting the same sectorial classification.

In the following section we present the methodology of decomposing differences in costs ofproduction in the intertemporal and interspacial comparisons within the input-output frame
work. In section 3, we present the application of the decomposition based on the Translog-

Tornqvist representation of the technology of sectorial price differences between Japan and the
U.S. in the year 1985. Section 4 provides the concluding remarks.

2.

Accounting for Cost Differences in the Intertemporal and Interspa
cial Comparisons

The international and interspacial comparisons of cost structure can be based on accounting
methods which are basically the same as those developed for intertemporal comparisons. Let's
start by considering the decomposition of the time-change of an aggregate value as follows:
dVt

d

dx

where Vt = J2iLi wa 'xit = wt *xt is tne sum of values obtained by multiplying the prices wit by
the quantities xiti for i — 1,..., N, and t means that they are considered as functions of time (wt

3 Denny and Fuss (1983), however, have shown that the direct application of econometrically estimatedTranslog production (or cost) functions is not always equivalent to the application of Tornqvist index num

bers. In fact, the Tornqvist index numbers of productivity difference correspond exactly (in Diewert's sense) tothe measure obtained using the underlying Translog functions only if these differ in their "first-order" parameters.
4 See Pasinetti (1973) for an extensive discussion of the concept of vertical integration in economic analysis.

A Comparison of Cost Structures in Japan and the U.S.

3

and xt represent column vectors of prices and quantities at time t, respectively, and ' denotes
transposition). Two main accounting methods for intertemporal comparisons can be devised

starting from equation (1) and following the so-called Bennet (1920) decomposition procedureand the Divisia (1925) index number approach. Denny and Fuss (1983b) provided a justificationfor extending these methods to interspacial comparisons.

2.1.

The Bennet decomposition procedure in the I-O accounting for cost changes

Integrating both sides of (1) from period 0 to period 1 yields:(2)

Bennet (1920; p.457) discrete-time approximations to the two sums of integrals in decompo

sition (2) are given by

aw = (W; - w;)i(Xl+x0) ~ ft ^xt ■ dt
;i1

(3)

Bennet also showed that the sum of the two approximating variables AW and AX is exactly
equal to the difference in the aggregate value in the two periods, that is:
Vi - Vo = AW + AX

(4)This result can be justified also on the ground of Diewert's (1976, p.118) Quadratic lemma. This
states that, for any quadratic function y — f{zuz2).".., zr) such that/(*l, *2, .-, Zr) = a0 + Zln a™Zm + £„ En *mnZmZn,-.

where am and amn are constants and amn = anm for all m,n, thenSince Vt = wt-xt

is a special case of (5), the corresponding accounting equation for costdifferences between period 1 and period 0 can be written as (4).

In the input-output framework, Vt can be assigned the meaning of a sectorial cost of pro
duction and wt and xt assume the meaning of vectors of input prices and input quantities,
respectively. Fujikawa, Izumi, and Milana (1993a)(1993b)(1995) applied the decomposition formula (4) to the changes observed in the accounting Leontief price system, which is expressed in"reduced" form as follows:If, for each ith output price pit, we replace the vector w^ with the row vector of primary input
prices vt = [vltv2t...vMt] of order M, and the vector xt with ith column of the matrix of order
M x N given by F*(I - A*)"1, where the matrices Ft and At are the Leontief's matrices of4

Journal of Applied Input-Output Analysis, Vol.2, No.2, 1995

direct input-output coefficients at period f, and apply repeatedly at various stages the same
decomposition procedure described above, we have:(pi - Po) = AFIM1+AFIM2+AFIM3= AFIM1A+AFIM1B+AFIM2A+AFIM2B+AFIM3A+AFIM3B^8^= AFIM1A+AFIM1B+AFIMT1+AFIMT2
where

AFIM1 = (v1-v0)|[F0(I-Ao)"1 +Fi(I-Ai)"1]: Total primary input price component;
AFIM2=|(vi+vo)(Fi-Fo)|[(I-Ao)"1+(I-Ai)-1]: Total primary input technologicalcomponent;

AFIM3 =|(vi + vo)^(F1 + F0)[(I - Ai)""1 - (I - Ao)"1]: Total intermediate input tech
nological component.

These can, respectively, be further decomposed as follows:
AFIM1 =AFIM1A+AFIM1B:
AFIM2 =AFIM2A+AFIM2B
AFIM3 =AFIM3A+AFIM3B
where

AFIM1A = (v1-vo)|(Fo + Fi): Direct primary input price component;

AFIM1B = (v1-v0)|[F0A0(I - Ao)"1 + FiAi(I - Ai)"1]: Indirect primary input pricecomponent;

AFIM2A =|(vi + vo)(Fi - Fo): Direct primary input technological component;

AFIM2B =|(vi + vo)(Fi - F0)^[A0(I - Ao)"1 + Ai(I - Ai)"1]: Indirect primary input
technological component;

AFIM3A=|(v1+vo)|(F1-f-Fo)|[(I-Ao)"1+(I-A1)-1](A1-Ao): Direct intermediate

input technological component;

AFIM3B =|(vi + vo)|(Fi + F0)|[(I - Aq)"1 + (I - Ai)"1]^ - A0)|(A0 + Ai).I[(I _ Ao)"1 + (I - Ai)"1]: Indirect intermediate input technological component;

and obtaining also

AFIMT1 =AFIM2A + AFIM3A: Direct total input technological component;
AFIMT2 =AFIM2B+AFIM3B: Indirect total input technological component.

It can be noted that the term (AFIM2+AFIM3) can be defined as the difference in theunit costs of production after accounting for differences in input prices. By normalizing output

and input prices, so that po= [11...1] and vo= [11...1], and redefining consistently the matrices
Fo, Fi, Ao, and Ai, the cost efficiency (defined as cost ratio) of the vertically integrated sectors
in 1 with respect to the same sectors in 0 is given by

7VIS = [L + AFIM2+AFIM3](9)

where i is the unit vector [1 1 ... 1].

The cost efficiency of industries in 1 with respect to the respective industries in 0 can becalculated by taking into account the "direct" technological components, that is

1IND = V + AFIM2A+AFIM3A](10)

The effect on cost efficiency of vertically integrated sectors arising from the relative productivity
incorporated directly and indirectly into intermediate inputs is given by the ratio
7INTP = TVIS ■ llND

(11)

A Comparison of Cost Structures in Japan and the U.S.

5

where^denotes a transformation of a vector into a diagonal matrix.
The relative total factor productivity of the vertically integrated sectors in 1 with respect tothose in 0 are expressed as

The total factor productivity of industries in 1 relative to that of industries in 0 is given by

wIND = [U...l]-j^D(13)

Therefore, the relative level of total factor productivity of 1 with respect to 0 can be decomposed
as follows:— kind • ^intp(14)

where 7TINTP = jJ^TPA slightly different procedure can be set up starting from the traditional input-output pricesystem that is expressed in "structural" form as follows:(15)
Adopting Bennet's discrete-time approximation given by (4) to the decomposition of timechange of the output prices in each sector yields:(Pi " Po) = (Pi - PoH(Ao + Ai) -j- (vi - vo)i(Fo + Fi)
(16)
+AT

where AT = |(p0 +pi)(Ai - Ao) + |(v0 +vi)(Fi - Fo) is the industry "direct" technologicalcomponent.

Expressing the system (16) in "reduced" form by solving it with respect to (pi -p0), througha simple further manipulation, gives:(Pi - Po) = AV1 + AV2 + AF1 + AF2 + AA1 + AA2(17)= AV1 + AV2 + ATI + AT2
where

AV1 =(vi - vo)|(Fo + Fi): Direct primary input price component;

AV2=(Vl -vo)|(Fo + Fi)|(Ao +Ai) [I - §(A0 + Ai)]"1: Indirect primary input pricecomponent;

AF1 =|(vo + vi)(Fi — Fo): Direct primary input technological component;

AF2 =i(v0 + vi)(Fi - Fo)^(Ao + Ai) [I - |(A0 + Ax)]"*: Indirect primary input tech

nological component;

AA1 =^(po +Pi)(Ai — Ao): Direct intermediate input technological component;

AA2=|(p0 + pi)(Ai - A0)^(A0 + Ai) [i - |(A0 -f-Ai)]"1: Indirect intermediate input

technological component;
and

ATI =AF1+AA1 = AT: Direct total input technological component;
AT2 =AF2-f AA2: Indirect total input technological component.
We note that the decomposition (17) approximates the decomposition given by (8), since
AV1 =AFIM1A

AV2 ^AFIMIB
AF1 =AFIM2A

6

Journal of Applied Input-Output Analysis, Vol.2, No.2, 1995

AF2
AA1
AA2
and

ATI ^AFIM2A+AFIM3A

AT2 ^AFIM2B+AFIM3B

Moreover, the intermediate input price component in (16) can be reconstructed by using
the indirect input price and technological components in (17), that is (pi - po)|(Ao + Ai) =AV2 + AT2 = AV2 + AF2 + AA2. This can be approximated by using the corresponding

elements in (8), that is (px - po)|(Ao + Ai) ~ AFIM1B + AFIM2B + AFIM3B5.

The two decomposition procedures (8) and (11) are not,,however, equivalent. The decom
position (8) starts from the reduced form of the accounting price equation system given by(7), whereas the decomposition (17) calculates the reduced form of the decomposition of pricechanges after the decomposition procedure has been applied to the "structural" form of theaccounting equation system. Moreover, we note that the decomposition (8) has the advantageof avoiding the use of the weights |(po + Pi), which are evidently constructed by using the same
prices that are under examination.

Finally, under the normalization of output and input prices, so that po= [11...1] and vo=[11...1], and consistent definition of the matrices Fo, Fi, Ao, and Ai, relative cost efficiencies
of vertically integrated sectors and industries are, respectively:

jVIS = [i + (AF1+AF2)+(AA1+AA2)](18)= [i + AT1+AT2]
andjIND = [i + AF1+AA1](19)= [i + ATl]
The relative total factor productivity measures for the vertically integrated sectors and industries
can be calculated, respectively, by using the above cost efficiency measures in the definitions(12) and (13).
2.2.

The Divisia index number approach in the I-O decomposition of cost changes

The second alternative decomposition method can be derived from the Divisia (1925) index
number approach. Starting from (1) and dividing through by Vt we obtain:dVt 1_ d\nVt _ y^dt vt ~

dt

where sa = ~-^™liXu~ Z^=idwu

at1• wn '

wax itN_ wjtxjt * ^i=1 y" wJtxjt
J~l
J-'

_J_

xa

dx

*

(20)

is the cost share of the ith input at time t. Integrating both sides of(20) from period 0 to period 1 yields:
5 Commenting on the decomposition procedure (8) proposed in a former version of the paper written by
Fujikawa, Izumi, and Milana (1993a) and presented at the 1993 PAPAIOS Annual Conference, Mitsuo Ezaki

suggested an alternative procedure, which consists of calculating components equivalent to (AVI + AV2),(AF1 + AF2), and (AA1 + AA2).

A Comparison of Cost Structures in Japan and the U.S.

7

lnVi-lnVo = H^
= Ef=1 /o **£»■ ■ «« ■ dt + £f=1 jj S^l . Sii. dt(2i)Good discrete-time approximations to the two sums of integrals in (21) are given by the
Tornqvist indices

A In W = (In wi - In w^)^ + s0) ~ jj ^^ • s, • dt

(22)

AlnX = I(sq + si)(lnxi - lnx0) ~ ft st • ^f^ • dt
We note, however, that unlike Bennet's discrete-time approximations these two Tornqvist
indices do not necessarily sum up exactly to the change of the aggregate value, so that in general(In V\ — In Vq) / A In W + A \nX. Therefore, if we want to guarantee the exact summing up of
the decomposition procedure and we are approximating, for example, the first sum of integrals

referring to the price components with the Tornqvist price index we must approximate thesecond integral by using the so-called implicit Tornqvist quantity index6 given by^sx +s0) ~ / ^ • ^J^ • dt
jo

(23)

where the superscript ~ means that the index number is constructed implicitly by deriving
it from the difference in the log-change of the aggregate value direct index number and the(weighted) log-changes of direct price indices.

Since the "direct" Tornqvist price index and the "implicit" Tornqvist quantity index always
sum up exactly to the change of aggregate value, we can write

In Vi - In Vo = Aln W + Aln~X(24)

In the framework of the 1-0 price model in reduced form given by (7), this approach gives
rise to the following approximating decomposition procedure:(25)= A In FIM1A + A In FIM1B + A lnFIMT

where At = ptAjp"1 and Ft = v^F^p^"1 (for 2=0,1) are the Leontief's direct 1-0 matrices,which are expressed in nominal shares valued at current prices and

AlnFIMlA =(lnvi - Invo)|(Fo + Fi): Direct primary input price component;
A In FIM1B =(ln vi - In vo)| [F0A0(I - Aq)"1 + Pi Ai(I - Ai)"1]: Indirect primary in

put price component;

Aln^IMT = (Inp! - lnp0) - (InVl - lnvo)i[Po(I - Aq)"1 + F^I - Ai)"1]: implicit(direct and indirect) Tornqvist-type technological component.

We note that the term A lnFIMT can be defined as the logarithmic difference in the unit
costs of production of the vertically integrated sectors, after accounting for differences in input
6 See, for example, Allen and Diewert (1981) for the concept of implicit index numbers.

8

Journal of Applied Input-Output Analysis, Vol.2, No.2, 1995

prices. The relative cost efficiency of sectors in 1 with respect to sectors in 0 are defined as theratio of costs that would be obtained after correcting for the effects of differing input prices,that is:jVIS = exp( A lnFIMT)(26)

where ~ means that this measure is calculated implicitly by using the implicit index A In FIMT.
The levels of relative total factor productivity of the vertically integrated sectors in 1 with respect

to those in 0 are given by:

TTVIS = [11...1] 'JviS_(27)= exp(-AlnFIMT)In the framework of the 1-0 price model in "structural" form given by (15), the same approachgives rise to the following approximating decomposition procedure:(lnpi - lnpo) = (lnpi - lnpo)±(Ao + Ai) + (In vi - In vo)±(Fo + Fi)
_

(28)

+AlnY

whereAln Y is the implicit Tornqvist index of (direct) technological component.

Solving (28) with respect to (lnpi — lnp0), through a further manipulation, yields:(lnpi - lnp0) = (lnvi - lnvo)|(Fo + Pi) [I - |(A0 + Ai)]"1+Al^Y.[l-i(Ao + A1)]"1(29)= A In VI + A In V2 + A hTTl + A lnT2
where

A In VI =(ln vi — In vo)^(Fo -f Fi): Direct primary input price component;

AlnV2 =(lnvi - In vo)|(Fo + Fi)|(A0 + Ax) [I - |(A0 '+ Ai)]

: Indirect primary input

price component;

AlnTl= A In Y =(lnpi - lnpo) - (lnpi - lnpo)|(Ao -h Ai)—(In vi — Invo)|(Fo + Fi): Direct total input technological component;

AlnT2=AlnTl-^(A0 + Ai) [i - |(A0 + Ai)]

: Indirect total input technological com

ponent.

We note that the decomposition (29) approximates the decomposition given by (25), since
AlnVl=AlnFIMlA

AlnV2 /AlnFIMlB

A In Tl + A In T2 ^ A In FIMT..

Moreover, the intermediate input price component in (28) can be reconstructedJ>y using theindirect input price and technological components in (29), that is (lnpi — lnpo)|(Ao + Ai) =AlnV2 4- AlnT2.

The implicit measures of relative cost efficiencies of vertically integrated sectors and indus
tries are, respectively, redefined as follows:

jVIS = exp (AlnTl + A lnT2)(30)

A Comparison of Cost Structures in Japan and the U.S.

9(31)
and, following definition (12), the implicit measure of technological component of intermediate
input prices is given by

T/iVTP = exp(AtoT2)(32)

The corresponding implicit measure of relative total factor productivity in vertically integrated

sectors and industries can be calculated, respectively, by using the above cost efficiencies. Re
calling definitions (10) and (13), we have:wVjs = [11...1] -Jvis = exp(-AlnTl - Aln~T2)(33)= kind • kintp

wherekind = [11-1] -7ind = exp(-AlnTl)(34)= [11...1] -Jintp = exp(-AlnT2)

(35)

and

In order to clarify some aspects of the methodology described above, we recall some theo
retical foundations from which this stems form. By establishing the Quadratic lemma, Diew-ert(1976) showedthat if the underlying "aggregator" function Vt = V(wt,0) (which is numer

ically equal to w't • xt, since it is assumed that xt = dVt/dwt and Vt — w^ • {dVt/dwt)), with
0= [ao»i»2--■<*nJiiJ12--Inn]1 being a vector of parameters which remain constant over time)

has a homogeneous Translog functional form, so thatNN

N

In V(wt,0) = ao + ]T a{ In wit + - ]T ^ jjk In wjtwkt
i=l

(36)

i = lAr=lthen lnKi-ln Vb = (lnwj -In Wq)^(s0-fsi), that is (In Vi -In Vo) can be exactly reconstructedby an aggregating Tornqvist index number of prices. In the notation of the 1-0 price model
the function (36) can be re-expressed, for each sector, as pi - exp q(lnpt,ln vt\d), where c,-(-)
has the value of the logarithm of a unit cost function. Therefore, if Q does not change overtime, the log-change of output prices can be exactly decomposed as follows: (lnpi - lnp0) =(lnpi-lnpo)|(Ao + Ai) + (lnvi-In vo)^(Fo + Fi), that is the log-change of output prices canbe accounted for only by a weighted sum of log-change of input prices, since no technologicalchange has taken place.

Technological changes are reflected by variations over time of the functional form or thetechnological parameters of the "true" unknown function ct-t(ln pt In vt; dt). As Denny, Fuss,and May (1981) have suggested, this function can be approximated by a function q(ln pt, In
vt,t; Q), which is quadratic in all the explanatory variables, including the technology index t.
The function cu(-) is therefore replaced by C{(•), which is characterized by a Translog functional
form with constant parameters Q and the additional explanatory variable t We also note that
onlyjn the case where cit(\n pt,ln vt;0t) is identically equal to cz(ln pt,ln vtit; 0) for all t's, will

AlnT = (lnpi -lnp0) - (lnpi-lnpo)^(Ao + Ai) - (In vx - In vo)^(Fo +Fi) be exactly equal

10 Journal of Applied Input-Output Analysis, Vol.2, No.2, 1995

to the "true" technological component, otherwise it will only approximate this last component7.
However, even if it is only approximating the "true" unknown technological component, this
implicit measure of magnitude always sum up exactly to the log-change of output prices, byconstruction, along with the direct measure of the input-price component.

Moreover, since the Translog function includes the Cobb-Douglas function as a special case,the use of Tornqvist-type formulas in input-output analysis brings about a generalization of
Klein's (1952-53)(1956) and Morishima's (1956)(1957) reformulation of Leontiefs equation sys

tem8. They used, in fact, constant input-output coefficients expressed as unit cost shares valued
at current prices, rather than technical coefficients valued at constant prices or expressed in phys

ical units, as in Leontiefs system. More specifically, the inverse matrix [I - |(A0 + Ai)]"1 isour Tornqvist-type reformulation of Leontiefs and Klein-Morishima's inverse matrices, where

the technology is described by an underlying Translog cost function. This reformulation permits
us to be consistent with recent applications of studies in the field of intertemporal and interspacial comparison of cost structure. As we mentioned above, these studies were all concernedwith the "direct" costs of production at the industry level, whereas we take into account, notonly the industries and their "direct" costs, but also the so-called "vertically integrated sectors,"
with their "direct" and "indirect" costs of production.

The concepts of "industry" corresponds to the 1-0 equation system (15), which is expressed in"structural" form using only direct 1-0 coefficients, whereas the concept of "vertically integrated
sector" corresponds to the 1-0 equation system (7), which is expressed in "reduced" form using
direct and indirect 1-0 coefficients. A domestic industry can be defined as an aggregate of"observed" production units which produce homogeneous goods by using primary inputs (humanand non human capital, labor, imported intermediate inputs, land and natural resources) as wellas domestically produced intermediate inputs, which are originated by other industries producing

different types of goods. On the other hand, a "vertically integrated sector" is an accounting
concept defined as an aggregate of "unobservable" production units which produce homogeneous
goods as final output as well as all the necessary domestically originated intermediate inputsof various kind by using only primary inputs9. Whilst the costs of production in each industry
and the corresponding vertically integrated sector are the same, their inputs are different: theindustry has to buy from other domestic industries some of the inputs of production (the socalled domestically produced intermediate inputs), whereas the theoretically defined verticallyintegrated sector is completely autonomous and therefore produces itself all the intermediate

inputs that are needed directly and indirectly as well as the final output by using all the necessary
primary inputs. Both concepts are useful for a complete accounting analysis qf the structure ofcosts of production.

The distinction between industries and vertically integrated sectors also makes clear thedifferent implications of the alternative formulas (8), (16), (25), and (29). The functional formsof the underlying production or cost function that are implied by the particular index number
formulas used in the above four alternative cases refer to different technological hypotheses. Morespecifically, in (8) and (25) the index number formulas correspond to a particular functional formof cost functions in the vertically integrated sectors, whereas in (16) and (29) they correspondto a particular functional form of cost functions in the "observed" industries. These different
7Since Diewert's Quadratic lemma involves derivatives of cost function with respect to its variables, a prob
lem may arise from the discontinuity of the technology index t between the countries examined in interspacialcomparisons. However, Denny and Fuss (1983b) provided a justification for the application of the Quadraticlemma in this context.

8See Saito (1972), among others, for the empirical application of this reformulation of Leontiefs system.

9 The notion of vertically integrated sector is implicit in various definitions of macroeconomic aggregatesand in many analyses of classical and neoclassical economists. Walras (1874,1877), for example, eliminatedintermediate inputs from his theoretical model by adopting the device of vertical integration. In I-O analysis,
Leontief (1953) (1956) applied empirically this concept for the first time by using his inverse 1-0 matrix (which
was previously defined in Leontief, 1941-1951). For an example of more recent applications see Heimler (1991).

A Comparison of Cost Structures in Japan and the U.S.

11

hypotheses on sectorial technology give rise to different results in the alternative decomposition
procedures.

Jorgenson and Kuroda (1990), Fuss and Waverman (1991), Nakamura (1991), Kuroda (1992),
and Denny, Bernstein, Fuss, Nakamura, and Waverman (1992) applied a formula equivalent to(28) to account for sectorial cost differences between Japan and the U.S., by aggregating the
inputs at the so-called KLEMlevel (Capital, Labor, Energy, and Intermediate inputs). They decomposed the sectorial cost differences into direct input price component, which in our notation

is given by (lnpi-lnpo)|(Ao+Ai) + (In vi -In vo)|(Fo+Ji) = (AJn Vl+Aln V2+AlnT2),
and direct technological difference, which is given by AlnTl=AlnY. Our proposed method
based on (29) decomposes the direct intermediate input price component given by (lnpi —lnpo)|(Ao + Ai) into the incorporated primary input price component, which is given by
AlnV2, and the incorporated total input technological component, which is given by AlnT2.
At the sectorial disaggregation level of the above-mentioned studies, it is important to decom
pose the direct intermediate input price component, as this often amounts to more than 60 per
cent of the unit cost of production.

3.

Empirical Results

In the preceding section we proposed four alternative methods which can be used to account fordifferences in sectorial costs of production between two countries. These methods are given by
the formulas (8), (17), (25), and (29) which can lead to slightly different empirical results. Since
we intend to compare our results with those obtained by previous studies in the field, whichwere based on the analysis of "direct" input costs by using a formula corresponding to (28), weshall concentrate mainly on formula (29), which can be derived from (28) as its "reduced" formand can be brought back to "direct" accounting components.
3.1.

Data

The Japanese and U.S. 1-0 tables for the year 1985, which were used in the empirical appli
cation, were harmonized according to the same industrial classification. The sectorial output
and primary input prices of Japan are relative to the respective U.S. prices. The output priceratios are calculated by using Purchasing Power Parity (PPP) data supplied by OECD for 187
commodities for the year 1985. The PPP data were aggregated to be consistent with the indus
trial classification by using the averages of share weights in the final consumption in the U.S.
and Japan. The PPP data were corrected in order to compare producer prices rather than con
sumer prices. Therefore, they were adjusted by excluding transportation costs and commercial
margins per unit of output. The levels of producer prices relative to the corresponding U.S.
prices (with all prices expressed in a common currency) were actually obtained by dividing thecorrected sectorial PPP data by the observed nominal exchange rate of Japanese Yen against 1

U.S. dollar10. The annual average of the nominal exchange rate in 1985 was 238.54 Yen per U.S.

dollar. Moreover, the original OECD PPP data should refer, ideally, to commodities that havethe same characteristics and quality standards, so that by deflating the current-price sectorial
values of production by means of the obtained corresponding producer prices, we would end up
with quantities and input-output coefficients that include quality differences between the twocountries. In practice, however, we cannot control if quality differences are completely netted
out from those computed producer prices and therefore our empirical results could be affectedby some residual errors in the data11. As for the sectorial labor prices, the ratios between theJapanese hourly wages expressed in Yens and the U.S. hourly wages expressed in U.S. dollars
10 For an analytical description of this calculation of price ratios, see Fujikawa, Izumi, and Milana (1995)
11 We are grateful to an anonymous referee for having reminded us about this point.

12 Journal of Applied Input-Output Analysis, Vol.2, No.2, 1995

(which give us implicitly the sectorial PPP for labor prices) were divided by the nominal exchange rate in order to obtain the Japanese labor prices relative to the corresponding U.S. labor

prices. The ratios between the sectorial Japanese capital prices relative to the corresponding
U.S. capital prices were derived by those used by Jorgenson and Kuroda (1990) and Kuroda(1992). The Japanese relative prices of outputs and primary inputs in 1985 are shown in Table
1, where the corresponding sectorial U.S. prices are normalized to 1.

Table 1: Japanese Sectoral Price Index Transformed by Purchasing Power Parities, 1985

(United States Price = 1.000)
Industry

Labor

Capital

Price

Input

Input

Price

Price

1.08691.6070Agriculture

1.858602

Mining2.16450.42890.740003

Oil & Natural Gas

1.17160.71440.740004

Food Products

1.4856

0.3994

1.026005

Textiles &; Clothing

1.00560.51810.61200.759001

Source:Output06

Paper and Wooden Products

2.52620.503807

Chemical Products

0.74130.59711.188008

Coal and Petroleum Products

1.75440.47320.962009

Non-metal Ores &; Products

1.97110.73070.248010Primary Metal

0.78910.5592

3.395011

Metal Products

0.75600.48330.887012

General Machinery

1.35530.5235

1.971013Electric Machinery

1.06150.4936

1.419014

Automobiles

0.79840.38405.015015

Transport Equipment

1.07730.55152.591016

Precision Apparatus

1.28660.48420.351017

Other Manufactures

1.29100.57310.917018

Building Sz Construction

1.36680.49100.769019Electricity, Gas, & Water

1.4482

0.63630.78600.894020

Wholesale Sz Retail Services

0.93040.730021

Finance and Insurance

0.93040.71050.800022

Real Estate Services

1.18670.75220.800023

Transport Services

0.98160.54212.364024

Communications

0.59011.61832.364025

Education &; Medical Services

1.98400.85830.482026

Other Services

1.79540.4906

0.686027

Not Elsewhere Classified

0.79260.89550.6860

Output Price: our computations based on OECD PPP data and nominal exchange rates
Labour Input Price: our computations based on national statistics
Capital Input Price: data made available by Masahiro Kuroda

Output and input prices

Sources of output price gaps

Wholesale and Retail Services, Financethe industries Automobiles, Transport Equipments, General Machinery, Transport Services, andand Insurance Services, and Transport Services. The cost of capital services is less uniform
than wages across the sectors. The cost of direct capital inputs is lower in Japan, except in

low total factor productivity, as in Metal Products,

the main factor of competitiveness of Japanese products and in some sectors offset the relatively

wages of laborers directly employed were lower than U.S. wages. The relatively low wages are

and Denny et a/.(1992) (see Table 2 and Figures 2, 4, and 5). In all sectors, except Agriculture,

all these alternative methods. Therefore, we shall present only those produced by the applicationof (29), which is consistent with the methodology used by Jorgenson and Kuroda (1990, 1992)

different results, as expected. Limited space prevents us to show the results obtained by applying

components. The alternative four methods of decomposition of price differences led to slightly

The price competitiveness indicated above is decomposed into input price and productivity

3.3.

The second column in Table 1 and Figure 1 reveal that labor input price is substantiallylower in Japan than in the U.S. in all sectors, except Agriculture. This lower labor input priceis, however, partially compensated by a capital input price, which in some industries turns out
to be much higher than that in the U.S. (see the third column in Table 1 and Figure 1).

and Other Services.

Building and Construction, Electricity, Gas and Water Supply, Education and Medical Services,

Products, Coal and Petroleum Products, Non-Metal Ores and Products, General Machinery,hand, it has absolute disadvantages in Agriculture, Mining, Food Products, Paper and Wooden

Proportional gaps of sectorial costs of production has been found very similar to those obtained
by Jorgenson and Kuroda (1992), Denny et a/.(1992), Kuroda (1994). In the first column of Table
1, Japan appears to have substantial absolute advantages over the U.S. in the industries Chemical
Products, Primary Metals, Metal Products, Automobiles, and Communications. On the other

3.2.

Figure 1: Relative Capital and Labor Prices in Japan, 1985 (U.S. = 1.00)

Capital Price

Relative

A Comparison of Cost Structures in Japan and the U.S. 13

14 Journal of Applied Input-Output Analysis, Vol.2, No.2, 1995

Communications, where it is substantially higher, and in Food Products, Primary metals, Metal

Products, and Electric Machinery, where it is approximately at the same level as in the U.S.
The relative productivity at industry level is similar to that found in the other studies inalmost all sectors (see Table 3 and Figure 3). However, our estimates for Paper and Wooden
Products, Electric Machinery, Transportation Equipment, and Precision Apparatus

are rather

different from those of Jorgenson and Kuroda (1990, 1992) and Denny et al. (1992). In general,
according to our results, total factor productivity is lower in Japan than in the U.S. in the
majority of industries, but it is substantially higher in Chemical Products, Automobiles, andCommunications. In the Automobiles industry, however, the relatively high level of productivity
is almost offset by a relatively high cost of capital. The strong competitiveness of Japan in thisindustry is therefore mainly due to wages which are lower than that in the U.S.

In almost all sectors, the intermediate input price component is higher in Japan than in
the U.S., thus partially offsetting the primary input price component in many sectors.

The

breakdown of the intermediate input price component into primary input price and productivity
components reveals that the productivity incorporated in intermediate inputs used by Japaneseindustries is much lower than that in the U.S. In no industry, at the level of aggregation of

our analysis, has this component turned out to be higher in Japan than in the U.S. It is worth
noting that in some industries, like Chemical Products, Primary Metals, Transport Equipment,

and Other Industries (n.e.c), the direct productivity component is higher in Japan than in the
U.S., but is completely offset by the lower indirect productivity component. In Primary Metals
and Transport Equipment the indirect productivity component more than offsets the direct
productivity component, thus leading to an unfavorable total productivity component. In thesecases, the vertically integrated sector presents an overall productivity, which is opposite to thedirect productivity component that is observed superficially at the industry level.

Therefore,

with the results reported above, the taxonomy in terms of technological gaps of Japan withrespect to the U.S., as defined at the industrial level by Jorgenson and Kuroda (1992, pp. 44-45,

Table 5), should be revised substantially if we consider it at the level of the so-called "verticallyintegrated sectors".
Table 2 as well as Figures 4 and 5 show that the relative cost efficiency of industries isapparently higher than vertically integrated sectors. Relatively low levels of productivity andinexpensive primary input prices characterize the production conditions in Japan that are "behind the scenes" of the single industries. As Figures 6 and 7 show, productivity in Japan relative
to the U.S. can turn out to be very different if we measure it at the level of vertically integrated
sectors instead of at the industry level.

For example, it is 80 per cent higher at the industry

level than at the level of vertically integrated sector in the case of Paper and Wooden Products.
In 17 industries out of 27, relative productivity at the industry level is equal or greater than

30 per cent of productivity measured at level of the corresponding vertically integrated sectors.
This means that international as well as intertemporal comparisons of cost efficiency or relative
productivity levels cannot be complete if they remain confined at the "superficial" analysis of
direct "industrial" costs.

In summary, our results indicate that only in a few manufacturing industries is the "direct"
productivity level higher in Japan than in the U.S. However, in these industries the "indirect"
productivity component is significantly lower than that in the U.S., thus bringing the Japanesetechnical performance observed in most sectors during 1985 at a lower level than that in the
U.S.

Table 2: Decomposition of Logarithmic Differences of Costs of Production between Japan and The U.S. in 1985 (EQ.(29))
Log

DirectDirectDifference

Labor

Capitalof CostSector+(4) + (8)Intermediate Input Price EffectDirectTechnolog.

Price

Price

Interm.

Indirect

Indirect

Indirect

EffectEffect

Input

Labor

CapitalTechnolog.
Effect

(2)

(3)

Price

Price

Price

EffectEffectEffect(5)(6)+ (6)+(7)Effect

(7)

(8)

01

Agriculture

0.61980.0441-0.0274

0.1680-0.1116-0.02500.30460.4352

02

Mining0.7722-0.2384-0.05310.1275-0.1828-0.01150.32180.936203

Oil& Natural Gas

0.1584-0.0674-0.1491

0.0654-0.0802-0.02590.17150.309604

Food Products

0.3958-0.1200

0.00400.3054-0.1561-0.0299

0.49140.206405

Textiles & Clothing

0.0056-0.1779-0.0135

0.0358-0.2514-0.0268

0.31400.161106

Paper and Wooden Products

0.9267-0.1617-0.0262

0.3286-0.2209-0.0306

0.58010.786007

Chemical Products-0.2993-0.08150.02410.0478-0.2102-0.03020.2882-0.289708

Coal and Petroleum

0.5621-0.0293-0.0070

0.1627-0.1540-0.1074

0.42410.4357

09

Non-metal Ores & Products

0.6786-0.1802-0.2052

0.2165-0.2031-0.0500

0.4696

0.8475

10

Primary Metal-0.2369-0.1679

0.03500.0153-0.2599-0.0077

0.2829-0.1193

11

Metal Products-0.2797-0.3952

0.02390.0299-0.2866-0.0059

0.26260.1214

12

General Machinery

0.3040-0.1955

0.07580.0450-0.24110.0046

0.28150.3787

13

Electric Machinery

0.0597-0.29640.00300.0512-0.2479-0.00400.30400.301914

Automobiles-0.2252-0.1555

0.24290.0125-0.2772

0.09150.1732-0.3000

15

Transport Equipment

0.0745-0.11160.1676

0.0432-0.24450.04920.2385-0.0246

16

Precision Apparatus

0.2520-0.2480-0.11140.0887-0.2172-0.0151

0.32100.5226

17

Other Manufactures

0.2554-0.1646-0.0100

0.1289-0.2011-0.02120.35120.301118

Building & Constr.

0.3125-0.2351-0.0264

0.1553-0.2267-0.01890.40090.418819

Electricity, Gas, & Water

0.3703-0.1020-0.07710.1401-0.1179-0.0457

0.30370.409220

Wholesale & Retail Serv.

-0.0721-0.1639-0.0140

0.0962-0.1096-0.02010.22590.009621

Finance and Insurance-0.0721-0.1649-0.03200.0613-0.1137-0.01960.1946

0.06350.3226

22

Real Estate Services

0.1712-0.0120-0.1783

0.0388-0.0471-0.01410.100023

Transport Services-0.0186-0.28770.07780.0880-0.1440-0.00370.23570.103424

C ommunications-0.5274-0.17130.3086

0.0677-0.0961-0.0060

0.1698-0.7324

25

Education & Medical Serv.
Other Services

0.6851-0.0743-0.10540.0692-0.1052-0.0228

0.19720.795726

0.5852-0.2713-0.0589

0.1493-0.1522-0.01960.32110.766227

Not Elsewhere Classified-0.2324-0.0663-0.04450.0746-0.0952-0.0079

0.1777-0.1962

O

I

o

O

8

W

|

f
c

in

Oi

Table 3: Relative Productivity of Japanese Industries and Vertically Integrated Sectors (U.S. = 1.00)
Relative Productivity
at,Industry or Vertically Intergrated Sector

J.-K.
1985

Industry Level, EQ.(34)
Kuroda

Denny

Our

etal.

Results

1985

1984-6

1985

c_

O

Indirect

Direct andPercentage

Productivity

IndirectDifference in

Productivity

Productivity

I8,>

Measurement

EQ.(35)

EQ.(33)(7)= {[(4)-(6)]/(6)}

(2)

(3)

(4)

(6)=(4)*(5)*100Agriculture

(5)

01

0.597

0.582

-

0.647

0.737

0.477

35.6

1

02

Mining

2.540

2.471

-

0.392

0.725

0.284

38.0

o

03

Oil& Natural Gas

_

_

0.734

0.842

0.618

18.7

(1)

04

Food Products

0.836

0.785

0.622

0.814

0.612

0.498

63.5

05

Textiles & Clothing

0.886

0.912

0.824

0.851

0.731

0.622

36.9

06

Paper and Wooden Products

0.981

0.977

0.982

0.456

0.560

0.255

78.6

07

Chemical Products

1.275

1.221

1.115

1.336

0.750

1.002

33.4

08

Coal and Petroleum

0.412

0.405

0.407

0.647

0.654

0.423

52.8

09

Non-metal Ores & Products

0.695

0.651

0.755

0.428

0.625

0.268

59.9

10

Primary Metal

0.970

0.926

1.219

1.127

0.754

0.849

32.7

11

Metal Products

0.731

0.720

0.672

0.886

0.769

0.681

30.0

12

General Machinery

0.746

0.745

0.842

0.685

0.755

0.517

32.5

13

Electric Machinery

1.173

1.191

1.329

0.739

0.738

0.546

35.5

14

Automobiles

0.949

0.975

_

1.350

0.841

1.135

18.9

15

Transport Equipment

0.647

0.559

0.735

1.025

0.788

0.807

26.9

16

Precision Apparatus

1.061

0.862

0.883

0.593

0.725

0.430

37.9
42.1

17

Other Manufactures

1.046

1.646

0.690

0.740

0.704

0.521

18

Building & Constr.

0.508

1.523

-

0.658

0.670

0.441

49.3

19

1.028

1.281

-

0.664

0.738

0.490

35.5

20

Electricity, Gas, & Water
Wholesale & Retail Serv.

0.791

0.839

_

0.990

0.798

0.790

25.3

21

Finance and Insurance

0.589

0.585

_

0.938

0.823

0.773

21.5

22

Real Estate Services

-

-

-

0.724

0.905

0.655

10.5

23

Transport Services

-

-

-

0.902

0.790

0.712

26.6

1.047

0.800

-

2.080

0.844

1.755

18.5

-

-

-

0.451

0.821

0.371

21.8

0.566

0.563

-

0.465

0.725

0.337

37.9

-

-

-

1.217

0.837

1.019

19.4

24

Communications

25

Education & Medical Sery.
Other Services
Not Elsewhere Classified

26
27

J. -K.:
Kuroda:Denny et al.:Derived from Jorgenson and Kuroda (1992, Table 5, pp.44-45) data on log differences in total factor productivity.
Derived from Kuroda's (1994, Table 3, p.17 ) data on log differences in total factor productivity.
Denny, Bernstein, Fuss, Nakamura, Waverman (1992, Table 6, p.599).

I

>

I

<<
CA

to

f

J°
CD
CD
en

A Comparison of Cost Structvires in Japan and the U.S. 17

Relative Difference in
Output Prices ((JP-US)/US)

Direct and Indirect

Productivity in Japan(US=1.0)

-

6

*

!

« ^

8

»

Figure 2: Difference in Output Prices and Productivity

II Jorgenson-Kuroda

40 -- □ Denny et al.

30-

20 "

H Fujikawa-Izumi-Milana

0-10-30 --

-40-

-50-

-6OL

I
Figure 3: Comparison of Estimations of Relative Difference in Productivity
between Japan and the U.S. ((JP-US)/US)18 Journal of Applied Input-Output Analysis, Vol.2, No.2, 1995

1.5

Direct Technological EffectDirect Input Price Effect1

Figure 4: Components of Log-Difference of Production Costs between Japanand the U.S. in 1985: Direct Effects at Industry Level

Direct and Indirect
Technological Effect

1.5

Input Price Effect

0.5

0

-0.5

-1
8

2

8

JS

s

i

22

2

s

s

a

a

Figure 5: Components of Log-Difference of Production Costs between Japanand the U.S. in 1985: Vertically Integrated Sectors

A Comparison of Cost Structures in Japan and the U.S. 19

Figure 6: Relative Direct and Indirect Productivity in Japan, 1985 (U.S. = 1.00)

80
70
60
50
40

30
20
10
0
s

I
I

s

s

s

s

3* 1& *o 1s

§82

=

22222

ii
I

Figure 7: Difference in Measurement of Relative Productivity Levels
between Japan and the U.S. in 1985

(Percentage Difference of Productivity between Industries and Vertically Integrated Sectors)

20 Journal of Applied Input-Output Analysis, Vol.2, No.2, 1995

4.

Conclusion

The bilateral comparison between Japan and the United States of relative levels of sectorial

unit production costs and their components has been carried out for the year 1985 by using
harmonized input-output tables and Purchasing Power Parities. The analysis aimed at finding
additional results that would complement those of previous studies in this field. It examined,
not only the direct costs of production at the industry level, but also the indirect costs thatare incorporated in the intermediate inputs.

Input-output analysis permits us to decompose

intermediate input costs into primary input price and technological components, thus giving afurther insight into the structure of costs of production. By using an input-output inverse matrix,

which is defined in such a way that it is exactly consistent with the technological assumptionsof the previous studies, we were able to replicate the results of these studies and extend them tothe so-called "vertically integrated sectors". The relative productivity gap between Japan andthe U.S. in 1985 turns out to be much higher if we consider the whole economic system that isbehind the production of the single goods rather than that observable at the industry level.
In particular, Japan seems to have been more competitive than the U.S. in 1985 in few
sectors (Chemicals, Primary Metals, Metals, Automobiles, Trade, Finance, Transport Services,

Communications, and Others not elsewhere classified). This higher competitiveness was mainly
due to lower labor input prices in Japan than in the U.S. This result is more evident in theanalysis carried out on the vertically integrated sectors, where both the input prices and cost

efficiency are much lower that those found at the industry level.
A natural possible extension of this study is in the direction of intertemporal bilateral andmultilateral comparisons of relative cost and productivity levels. The availability of harmonized
input-output tables of Japan, the U.S. and the major European countries for different years

starting from 1970 makes it possible to apply the methodology established in this paper to thecomparison of cost structures of single pairs of countries in different periods of time. Multilateralcomparisons can be made by using appropriate weighted averages of the results obtained in thesebilateral comparisons.

Appendix
Data sources
The list of data sources for the comparison of cost structures in the 1-0 tables of Japan and the
U.S. is the following:

A. Prices by commodity
OECD, "Purchasing Power Parities and Real Expenditures 1985," Paris, (less than 60 items,
aggregates and sub-aggregates);
OECD, PPP data 1985, Paris, on diskettes (187 commodities).
Except the sectors mentioned below, the PPP data were aggregated into the 27 sectors of
the input-output tables by using geometric weighted formulae. Since the PPP data arepurchaser prices, they should be adjusted to the level of producer prices in order to be used
to deflate the input-output table of each country. The data on prices of steal products ofJapan and the U.S. were taken from World Steel Intelligence, 1992 (price of cold-reduced
coil at April 1985). More specifically, for Japan the weighted average of Big Buyer Price(40% weight) and Dealer Price (60% weight) has been used. PPP data for the whole GDP
were used as proxies for prices of Trade and Finance sectors.

A Comparison of Cost Structures in Japan and the U.S. 21

B. Nominal exchange rate between Japan and the U.S. for the year 1985
International Monetary Fund, International Financial Statistics, Washington, D.C.
C. Input-Output tables

USA: Department of Commerce, "Annual Input-Output Accounts of the U.S. Economy," Sur
vey of Current Business, January 1990.

Japan: Management and Coordination Agency, Input-Output Table 1985, Tokyo, 1990.

The sectorial classifications of the Japanese and U.S. 1-0 tables were harmonized according to
the same sectorial classification.
D. Wages by industry

USA: Department of Commerce, "National Income and Product Accounts," Survey of Current
Business, July 1987.

Japan: Management and Coordination Agency, 1985 Input-Output Tables, Tokyo, 1989.

Wages were calculated dividing the value of compensation of employees by the number of
employees.

E. Persons in production activities

Japan: Management and Coordination Agency, Input-Output Tables, 1985 (Employment table), Tokyo, 1989.

USA: Department of Labor, Time Series Data for Input-Output Industries, Washington, D.C,
1989.

F. Average annual working hours

Japan: (i) Ministry of Labour, Monthly Labour Survey, Tokyo, 1985; (it) Management and Co
ordination Agency, Labour Force Survey, Tokyo, 1985. If the sectorial data were available
in source (i), the average annual working hours of employee were obtained by multiplying
them by 12. Otherwise, the average weekly working hours published in source (it) havebeen multiplied by 52.1.

USA: Department of Labor, Time Series Data for Input-Output Industries, Washington, D.C,
1989.

G. Capital input prices

Japan: Capital input prices at the industry level relative to those of the U.S. in 1985 are thoseused by Jorgenson and Kuroda (1990) and Kuroda (1994).

22 Journal of Applied Input-Output Analysis, Vol.2, No.2, 1995

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