Linkage, sectoral productivity, and employment spread

Abstract

This study demonstrates how differences in the prefectural input–output (IO) multiplier and sectoral total factor productivity (TFP) translate into aggregate income differences across prefectures within a country. Furthermore, this study investigates the job creation generated from the IO multiplier and TFP relationship and considers expenditure in the high-income group.Our results show that aggregate multipliers substantially amplify average sectoral TFP by propagating through the IO network. However, as log TFP levels and multipliers are negatively correlated, sectors with high multipliers have below-average productivity levels, which reduces income per worker because key inputs to downstream sectors are expensive. The overall effect of the IO structure is dampened relative to the aggregate multiplier effect. For example, the commerce sector has large multipliers in many prefectures and is thus amplified through the IO network, but their TFPs are lower and do not significantly contribute to the increase in income. The TFPs of the information and communication equipment sector in certain prefectures are higher than those in Tokyo, but the benefits are not amplified well within the prefecture because their multipliers are low.Furthermore, sectors with high productivity generate fewer jobs than other sectors do. The sectors with a large influence on job creation in other sectors are not amplified well through the IO network because of the small multiplier. From the expenditure viewpoint, the high-income group increases their education consumption exponentially, but the multiplier is low and not widespread within the prefecture. The construction sector has a significant influence on job creation in other sectors. However, their economic activities do not spread widely within a prefecture, and the high-income group does not increase housing consumption in proportion to their income. Residents in prefectures with high multipliers tend to spend more money outside their residential prefectures, such as online shopping. Thus, expenditure outside residential prefectures reduces the effect of the multiplier that amplifies the average sectoral TFP and the difference in income across prefectures.This study contributes to the existing literature by providing an explicit understanding of these relationships. Our findings make people realize that promoting the industry alone is not enough to increase income and generate highly productive jobs. A spillover perspective is required.