【Aging, safety net and fiscal crisis in Japan】No.78: Labor Share Ratio by Industry

In February 2018, the Ministry of Economy, Trade and Industry released a report titled the "Corporate Activity Basic Survey" with data for 2016. This is the summation of the financial data of 29,970 companies each with more than 50 employees and capital (or investment) of 30 million yen or above. As explained in Column No. 77, companies are updating their operating profit margins based on corporate statistics released by the Ministry of Finance. This survey also shows that the operating profit margin per company in the manufacturing and wholesale trade industries is at a record high since the survey began in 2001.

This survey reveals labor share ratios of about 70 industries. In Column No. 77, after setting the calculation method of labor share ratio as dividing total personnel expenses by total added value, the total added value is defined as [personnel expenses + operating net profit + interest expense + tax + movable property / real estate rent]. However, the Ministry of Economy, Trade and Industry adds depreciation to the denominator while calculating labor share ratio. In other words, there are two ways of defining the labor share ratio, depending on whether depreciation is included in the denominator or not. It is necessary to note that the labor share ratio of the Ministry of Economy, Trade and Industry, which includes depreciation expenses in the denominator, is lower.

As shown in Figure 1, the overall average of labor share ratios is 48.8%, but, there is a large disparity among industries. The labor share ratio of the electric power industry is low at 19.7%, because the depreciation cost is high. Both, the software and food service industries, have a high labor share ratio of 61.9%, which reflects that they are labor intensive industries.

Source: Corporate Activity Basic Survey by the Ministry of Economy, Trade and Industry.