An Analysis of Labor Productivity and Capital Intensity

Let's briefly consider the issue of labor reform. The following graph, drawn using Penn World data, shows the production function y=f(k).

The vertical axis represents labor productivity, and the horizontal axis represents capital intensity, with data spanning the period from 1953 to 2019. In the US and Germany, labor productivity has increased without a corresponding increase in capital intensity, a result of the Fourth Industrial Revolution and technological progress.

On the other hand, Japan has seen no growth in either productivity or intensity since 1990, resulting in a lost decade. When considering Korea, despite an increase in capital intensity, labor productivity has been slow to rise, leading to a productivity trap. Taiwan, although with higher overall productivity due to its light industry or electronics industry, has also experienced decades of stagnation. Merely relying on semiconductors for growth may not be sustainable for the national economy.

If labor productivity in Korea fails to improve, a lost era may be on the horizon, with the graph continuing to "stationary state" like Japan. This story cannot solely be attributed to labor market flexibility, as a variety of factors including difficulties in the Korean industry, problems with self-employment, and nepotistic succession of management rights also play a role.