In EPISODE #010, we observed that the G7 does not share one common structural trajectory.
Some economies compress sectoral productivity gaps over time.
Others preserve them.
Some even become more dispersed.
That finding raises a deeper question.
If all advanced economies are exposed to technological change, globalization, demographic aging, and long-run sectoral transition, why do they not adjust in the same way?
Why do some systems gradually narrow structural imbalance, while others remain structurally persistent — or become more dispersed?
The figures in EPISODE #010 showed three paths — compression, persistence, and divergence. Here, the question is not what those paths look like, but what kinds of internal movements could produce them.
A useful starting point is to treat structural adjustment not as a single process, but as the combined result of several movements occurring within an economy:
When these movements reinforce one another, structural productivity gaps may gradually compress.
When they remain limited, dispersion may persist.
When they reinforce existing imbalances, structural dispersion may widen.
The first mechanism is labor mobility.
An economy can reduce structural imbalance only if workers are able to move, over time, from relatively low-productivity sectors toward more productive ones.
This movement does not need to be sudden.
But it does need to remain possible.
When mobility is limited, structural dispersion can remain high even if productivity differences are clearly visible.
Workers may remain in sectors with weak productivity not because those sectors are expanding, but because transition is difficult and the cost of movement is high.
The result is not necessarily crisis.
It may simply be long-term structural inertia.
In some economies, this rigidity appears in the form of labor segmentation.
The labor market may be divided between protected and less protected workers, between stable and unstable employment, or between sectors that absorb labor under very different conditions.
In such cases, adjustment becomes uneven.
Productive sectors do not necessarily draw labor toward them, and weaker sectors do not necessarily release labor quickly.
Japan offers an especially suggestive case in this respect.
Its rising L1 trajectory is consistent with an environment in which labor adjustment remains incomplete and sectoral imbalance can persist over long periods.
The distinction between regular and irregular employment is one possible expression of this broader structural segmentation.
The second mechanism concerns capital reallocation.
Structural adjustment depends not only on where people work, but also on where resources continue to flow.
If capital is redirected toward sectors and firms with stronger productivity performance, structural imbalance may gradually narrow.
If not, weaker structures may remain in place for much longer than their productivity would suggest.
This is why the issue is not simply investment, but the quality of reallocation.
An economy can continue investing and still show limited structural adjustment if capital is repeatedly retained in low-productivity activities.
Under such conditions, the structure becomes more stable than flexible.
This does not imply that all persistence is irrational.
In some systems, continuity may be valued more highly than rapid restructuring.
Sudden firm exit, rising unemployment, or regional disruption may be seen as socially costly even when they would improve measured efficiency.
But the structural consequence of that preference may be clear: misalignment can remain in place for long periods.
Japan’s post-bubble experience has often been discussed in these terms, especially in relation to financial forbearance and the survival of weak firms.
Italy, though different in institutional form, also suggests how fragmented adjustment can preserve structural dispersion rather than compress it.
The third mechanism is productivity diffusion.
Even when some sectors achieve high productivity, the economy as a whole does not necessarily become more balanced.
That depends on whether improvements spread outward or remain unevenly transmitted across the wider structure.
If productivity gains diffuse across firms, sectors, and labor groups, structural gaps may narrow over time.
But if productivity remains concentrated in limited parts of the economy, then high-productivity zones can coexist with much weaker ones for long periods.
The result is not uniform advancement, but structural duality.
This is one reason why structural dispersion is so informative.
It does not only show whether sectors differ.
It also shows whether an economy is integrating those differences or continuing to live with them.
Compression is consistent with wider diffusion.
Persistence is consistent with only partial absorption.
Divergence is consistent with more limited diffusion of productivity across the economy.
This perspective helps explain why two economies may both contain advanced firms and still follow very different structural paths.
The decisive question is not only whether productivity exists at the frontier, but whether it reshapes the wider structure.
Taken together, these mechanisms suggest that the three trajectories observed in the G7 can be read as three broad adjustment regimes.
In compression regimes, labor mobility, capital reallocation, and productivity diffusion appear strong enough to reduce structural imbalance over time.
The United Kingdom and Germany illustrate this broad tendency, even though the institutional details behind their adjustment are not identical.
In persistence regimes, these mechanisms operate only partially.
The structure does not move toward deeper imbalance, but neither does it clearly converge.
France, the United States, and Canada may be read in this way: different systems, but with structural gaps that remain broadly stable rather than decisively transformed.
In divergence regimes, adjustment is weaker still.
Labor remains segmented, capital is not fully reallocated, or productivity gains remain too unevenly distributed to reshape the whole structure.
Japan and Italy illustrate this pattern, though not necessarily for the same reasons.
The common result is that structural dispersion does not shrink.
It remains high — or rises further.
At this point, one further possibility becomes visible.
The differences in structural adjustment may reflect different trade-offs between stability and reallocation embedded within each economy.
Some systems appear more willing to accept instability, firm exit, labor turnover, or widening income differences if these processes facilitate reallocation toward more productive uses.
Others appear more reluctant to accept such disruption, even if that means slower structural correction.
In that sense, the path of adjustment may reflect not only economic capacity, but also the kind of stability an economy attempts to preserve.
This does not require moral judgment.
It does not mean one path is universally right and another universally wrong.
But it does suggest that structural outcomes may reflect deeper choices — explicit or implicit — about what kinds of change an economy tolerates and what kinds it resists.
Seen from this perspective, divergence is not merely a technical problem.
It may be the visible macroeconomic expression of a system that protects continuity more strongly than reallocation.
Compression, by contrast, may reflect a system more willing to permit disruption in exchange for structural adjustment.
The central implication is simple.
Structural productivity gaps do not shrink automatically with time.
They narrow only when the underlying mechanisms of adjustment are able to move labor, capital, and productivity in mutually reinforcing ways.
This is why the trajectories in EPISODE #010 matter so much.
They are not just descriptive patterns.
They reveal whether an economy is structurally correcting itself, preserving internal imbalance, or drifting further away from alignment.
This discussion has focused on the mechanisms that shape structural adjustment — how labor moves, how capital is reallocated, and how productivity spreads across the economy.
But structural alignment is only one dimension of macroeconomic performance.
Even if an economy exhibits persistent dispersion, another question remains: how fully is its labor actually utilized?
The next step is therefore to extend the analysis from allocation to utilization.
Instead of asking only where people work, we begin to ask whether they work at all — and how this differs across economies.
This shift introduces a new perspective on the same system.
Structural imbalance and labor utilization may interact in ways that are not immediately visible when each is considered separately.
Next:
DDISCUSSION #010 — Participation Structure Across the G7