Comparing the Management Practices and Productive Efficiency of Korean and Japanese Firms: An Interview Survey Approach

Abstract

In this study, we conduct interview surveys on management practices in Japanese and Korean firms following the study of Bloom, and Van Reenen (2007). The average management scores in Japanese firms are higher than those in Korean firms, and human resource management is positively associated with firm performance. When a Korean dummy is added as a shift term in regressions with the merged sample, its coefficient is negative, implying that Korean firms have low efficiency. However, when the cross terms of the Korean dummy are added with capital and labor, the significance of the shift term disappears. This observation entails that any efficiency difference between the two countries does not come from a technical efficiency (shift term) but from a factor efficiency (marginal productivity of labor and capital). One robust result of this study is that a high output elasticity of capital is observed in Korean firms, whereas a high output elasticity of labor is noted in Japanese firms despite the high capital ― labor ratios in the former. One interpretation of this puzzle is that Japanese firms have pursued the optimization of labor uses and have been relying on labor-saving growth in the face of labor shortage and aging and that Korean firms have relied on capital for growth, continuously renovating and updating their capital, thereby recording a high capital productivity in contempt of aggressive labor.