Is Retail Service Productivity Really Low in Japan? -- Numerical experiment based on Shepard's model --

The middle 1990s began a serious economic recession for Japan known as the "lost decade". Productivity appears to be a contributing factor to the recession with service sectors receiving an especially bad reputation for low productivity compared to the manufacturing industries. But this assumption has not been analyzed in terms of service output definition. This paper focuses on the relationship between the output definition and productivity for the retail trade service sector, both of which are often quite ambiguous. Applying the theoretical model of Shepard(JPE:1991), we define the retail trade service output as the consumer's satisfaction with the service and try a numerical experiment on margins and productivity according to the scenario that describes the environmental changes in the Japanese retail trade service market. The simulation results show the substantial effect that deregulation has on lower retail trade service margins. In the case of retail trade service sectors, where production and consumption occur simultaneously, the productivity level depends highly on the definitions inherent in a consumer's evaluation and satisfaction. Hence, the simple productivity comparison across regions might be misleading and sometimes meaningless.