## Figure 22: Source of competitiveness according to companies' views

Looking at the source of competitiveness according to companies' views, the percentage of "Technological capability to create high value-added based on existing products and services" remains at a high level but declines for the future, while the percentage of "Capability to develop new products and services" increases. Also, the percentages of "Diversification of human resources" and "Human resource development system to enhance abilities and qualities" considerably increase, suggesting a strong recognition of these supporting factors.

Source: “Survey on the Corporate Management and Human Resources in the Midst of Structural Changes” (February 2013) Japan Institute for Labour Policy and Training

## Figure 23: Analysis of factors for the labour productivity change ratio

By breaking down the factors for labour productivity change, we can see that the capital deepening and TFP increase contributed to the increase of labour productivity, but the contribution by capital deepening to increase declined. Since the mid-1990s, the labour allocation effect negatively contributed to labour productivity.

Source: Prepared by the Office of Counselor for Labour Policy, MHLW, based on the "Japan Industrial Productivity (JIP) Database 2012" The Research Institute of Economy, Trade and Industry (Note) The factors are broken down in accordance with the following formula.

Y represents the real value-added, y represents the labour productivity, A represents the TFP (total factor productivity), $ \alpha $ represents the capital allocation ratio, k represents the capital-labour ratio, and $ \theta $ represents the workers composition ratio by sector.

## Figure 24: Influence of worsening of terms of trade on wages

Assuming that the labour share ratio remains the same, we can see that the increased labour productivity cannot easily lead to increase of wages, due to income outflow resulted from worsened terms of trade.

(Note) 1) When $ \delta $ represents the labour share ratio, W represents the nominal wage per person, L represents the number of employees, Y represents the real GDP, P represents the GDP deflator, and Pd represents the domestic demand deflator,

Thus: Change rate of labour share ratio = Real wage change rate - Labour productivity change rate - Income outflow effect

"Real wage increase rate, on the assumption that the labour share ratio remains the same" becomes the total of the labour productivity change rate and the income outflow effect when the left member of the above formula becomes 0.

2) The income outflow effect is the change rate of P/Pd, and is obtained by subtracting the domestic demand deflator from the GDP deflator increase rate. This represents the reduction in real purchasing power of domestic income, which is due to an increase of the domestic demand deflator resulted from an increase of import price, thus it becomes nearly equal to: difference of trade profits with the last year $ \div $ real GDP.

3) The real wage increase rate (actual performance) is based on the total sum of cash earnings (in the business establishments with 30 or more employees).

4) The graph shows moving average values of 4 quarterly movements.