In this paper we analyze the productivity of the Japanese software industry, using matching data from the Basic Survey of Japanese Business Structure and Activities, and the Survey of Selected Service Industries. Using data concerning the receipt and issuance of orders between software companies, we categorize each of them as one of four types, namely "independent," "prime contractor," "intermediate contractor," and "final contractor," and then compare total factor productivity. The result shows that the productivity of "independent" software companies is higher than that of the other types, namely the companies that make up the multilayered software industry, starting from prime contractors to intermediate contractors and then to final contractors. In addition, we analyze how innovation activities, as seen in patents and R&D, and factors concerning the quality of personnel, such as ratios of software engineers and programmers to total employees, impact productivity. As a result, we find that innovation activities are important as decisive factors for productivity, especially in prime contractor companies, as is the quality of personnel in independent companies.
