The productivity gap between Europe and the United States : Trends and causes

The benefits of the modern knowledge economy differ greatly between advanced economies. Average annual labor productivity growth (measured as GDP per hour of work) in the United States accelerated from 1.2 percent in the 1973–1995 period to 2.3 percent from 1995 to 2006. Conversely, the 15 European Union countries that constituted the union up to 2004 experienced a productivity growth slowdown between these two time periods. For these 15 countries as a group, labor productivity growth declined from an annual rate of 2.4 percent during the period 1973–1995 to 1.5 percent during the period 1995– 2006. While differences in the timing of business cycles in the United States and the European Union may have some effect on this comparison, they do not explain these divergent trend growth rates. This paper shows that the European productivity slowdown is attributable to the slower emergence of the knowledge economy in Europe compared to the United States. We consider various explanations which are not mutually exclusive: for example, lower growth contributions from investment in information and communication technology in Europe, the relatively small share of technologyproducing industries in Europe, and slower multifactor productivity growth (which can be viewed as a proxy for advances in technology and innovation). Underlying

[1]  N. Crafts.  REGULATION AND PRODUCTIVITY PERFORMANCE , 2006 .

[2]  G. Dosi,et al.  Introduction: Interfirm heterogeneity—nature, sources and consequences for industrial dynamics , 2010 .

[3]  Designing a New Architecture for the U.S. National Accounts , 2010 .

[4]  N. Crafts.  The contribution of new technology to economic growth: lessons from economic history* , 2010, Revista de Historia Económica / Journal of Iberian and Latin American Economic History.

[5]  Ronald Schettkat,et al.  The shift to services employment: A review of the literature , 2006 .

[6]  Paul Schreyer,et al.  Computer Price Indices and International Growth and Productivity Comparisons , 2002 .

[7]  Fulvio Castellacci,et al.  Structural Change and the Growth of Industrial Sectors: Empirical Test of a Gpt Model , 2010 .

[8]  C. Syverson.  What Determines Productivity? , 2010 .

[9]  W. Baumol,et al.  MACROECONOMICS OF UNBALANCED GROWTH: THE ANATOMY OF THE URBAN CRISES , 1967 .

[10]  Harsha Aturupane.  Poverty, human development and growth : an emerging consensus? , 1994 .

[11]  Dale W. Jorgenson,et al.  Information technology and the American growth resurgence , 2005 .

[12]  M. Haacker.  ICT Equipment Investment and Growth in Low- and Lower-Middle-Income Countries , 2010, SSRN Electronic Journal.

[13]  M. Burda,et al.  TFP Growth in Old and New Europe , 2009 .

[14]  D. Jorgenson.  A New Architecture for the U.S. National Accounts , 2006 .

[15]  Mary O'Mahony,et al.  EU Productivity and Competitiveness: An Industry Perspective Can Europe Resume the Catching-up Process? , 2003 .

[16]  Sokbae Lee,et al.  Is Distance Dying at Last? Falling Home Bias in Fixed Effects Models of Patent Citations , 2007 .

[17]  B. Ark,et al.  Productivity and participation: An international comparison , 2005 .

[18]  Jack E. Triplett,et al.  Productivity in the U.S. Services Sector: New Sources of Economic Growth , 2004 .

[19]  Emek Basker,et al.  The Causes and Consequences of Wal-Mart's Growth , 2007 .

[20]  Steven N. Kaplan,et al.  Are U.S. CEOs Overpaid , 2008 .

[21]  An Agenda for a Growing Europe: The Sapir Report , 2004 .

[22]  A. Boltho.  The European Economy: Growth and Crisis , 1982 .

[23]  Ester Gomes da Silva.  Capital services estimates in Portuguese industries, 1977-2003 , 2010 .

[24]  Z. Griliches,et al.  The Explanation of Productivity Change , 1967 .

[25]  Carolina Castaldi,et al.  The relative weight of manufacturing and services in Europe: an innovation perspective on structural change ⁄ , 2009 .

[26]  P. Schofield,et al.  Review of periodical literature published in 2008 , 2010 .

[27]  J. Haltiwanger,et al.  Market Selection, Reallocation, and Restructuring in the U.S. Retail Trade Sector in the 1990s , 2006, The Review of Economics and Statistics.

[28]  Jack E. Triplett,et al.  ‘Baumol’s Disease’ has been Cured: IT and Multifactor Productivity in US Service Industries , 2006 .

[29]  John Van Reenen,et al.  Americans Do I.T. Better: US Multinationals and the Productivity Miracle , 2007 .

[30]  Mary O'Mahony,et al.  Output, Input and Productivity Measures at the Industry Level: The EU KLEMS Database , 2009 .

[31]  Dale W. Jorgenson,et al.  Productivity and U.S. Economic Growth , 1999 .

[32]  S. Nickell.  Unemployment and Labor Market Rigidities: Europe versus North America , 1997 .

[33]  Marcel P. Timmer,et al.  Does information and communication technology drive EU-US productivity growth differentials? , 2005 .

[34]  R. Gordon.  Why Was Europe Left at the Station When America's Productivity Locomotive Departed? , 2004 .

[35]  Christian M. Dahl,et al.  ICT and productivity growth in the 1990s: panel data evidence on Europe , 2011 .

[36]  N. Che,et al.  Factor Endowment, Structural Coherence, and Economic Growth , 2010, SSRN Electronic Journal.

[37]  Z. Griliches.  Productivity, R&D, and the Data Constraint , 1998 .

[38]  Frederick H. Abernathy,et al.  A Stitch in Time: Lean Retailing and the Transformation of Manufacturing—Lessons from the Apparel and Textile Industries , 1999 .

[39]  P. Aghion,et al.  Distance to Frontier, Selection, and Economic Growth , 2002 .

[40]  Marcel P. Timmer,et al.  Mind the Gap! International Comparisons of Productivity in Services and Goods Production , 2007 .

[41]  Mary O'Mahony,et al.  EU KLEMS Growth and Productivity Accounts: An Overview , 2007 .

[42]  G. Cette,et al.  Trends in 'Structural' Productivity Levels in the Major Industrialized Countries , 2006 .

[43]  E. Bartelsman,et al.  Forecasting Aggregate Productivity Using Information from Firm-Level Data , 2009 .

[44]  Van Ark,et al.  Economic growth in Europe since 1945 , 1996 .

[45]  N. Oulton.  Long Term Implications of the ICT Revolution: Applying the Lessons of Growth Theory and Growth Accounting , 2012 .

[46]  R. Solow.  TECHNICAL CHANGE AND THE AGGREGATE PRODUCTION FUNCTION , 1957 .

[47]  Martin C. Spechler,et al.  The European Economy Since 1945. Coordinated Capitalism and Beyond , 2009 .

[48]  Robert Inklaar,et al.  Market Services Productivity Across Europe and the US , 2007 .

[49]  Déterminants de la productivité par employé: une évaluation empirique en données de panel , 2004 .

[50]  M. Baily,et al.  Transforming the European Economy , 2004 .

[51]  William J. Baumol,et al.  American Economic Association Macroeconomics of Unbalanced Growth : The Anatomy of Urban Crisis , 2007 .

[52]  A. Maddison.  GROWTH AND SLOWDOWN IN ADVANCED CAPITALIST ECONOMIES - TECHNIQUES OF QUANTITATIVE ASSESSMENT , 1987 .

[53]  Creative destruction: Efficiency, equity or collapse? , 2010 .

[54]  Katharine G. Abraham.  Distinguished Lecture on Economics in Government—What We Don't Know Could Hurt Us: Some Reflections on the Measurement of Economic Activity , 2005 .