This is weird because other sources do point towards a productivity gap. For example, this report concludes that âEuropean productivity has experienced a marked deceleration since the 1970s, with the productivity gap between the Euro area and the United States widening significantly since 1995, a trend further intensified by the COVID-19 pandemicâ.
Specifically, it looks as if, since 1995, the GDP per capita gap between the US and the eurozone has remained very similar, but this is due to a widening productivity gap being cancelled out by a shrinking employment rate gap:
This report from Banque de France has it that âthe EU-US gap has narrowed in terms of hours worked per capita but has widened in terms of GDP per hours workedâ, and that in France at least this can be attributed to âproducers and heavy users of IT technologiesâ:
The Draghi report says 72% of the EU-US GDP per capita gap is due to productivity, and only 28% is due to labour hours:
Part of the discrepancy may be that the OWID data only goes until 2019, whereas some of these other sources report that the gap has widened significantly since COVID? But that doesnât seem to be the case in the first plot above (it still shows a widening gap before COVID).
Or maybe most of the difference is due to comparing the US to France/âGermany, versus also including countries like Greece and Italy that have seen much slower productivity growth. But that doesnât explain the France data above (it still shows a gap between France and the US, even before COVID).
Thanks for this. I already had some sense that historical productivity data varied, but this prompted me to look at how large those differences are and they are bigger than I realised. I made an edit to my original comment.
TL;DR: Current productivity people mostly agree about. Historical productivity they do not. Some sources, including those in the previous comment, think Germany was more productive than the US in the past, which makes being less productive now more damning compared to a perspective where this has always been the case.
***
For simplicity Iâm going to focus on US vs. Germany in the first three bullets:
I struggle to find sources claiming a large gap in current productivity between the US and Germany.
However, historical productivity estimates vary much more significantly.
Some, like Our World in Data, show German productivity below US productivity near-continuously, e.g. 6% lower in 1995.
Some sources claim Germany had higher productivity 20+ years ago, and combined with the slightly lower present productivity that everybody agrees on that can imply noticeably lower growth:
If you look at the charts in the Banque France report you can see an example of this, with German productivity given as 3% higher in 2000.
A striking example is the OECD, which puts German productivity >10% higher in 1995.[2]
The Bergeund report, which is also the source for a chart from Draghiâs reportâshown belowâhas around 8% higher German productivity in 1995.
So there are two competing stories, which I donât know how to adjudicate between:
German productivity used to be slightly higher than US productivity, but is now slightly lower.
German productivity has always been slightly lower than US productivity.
German productivity is higher than EU productivity as a whole, by a factor of roughly 1.15x.
So you can substitute âslightly higherâ for âslightly lowerâ and âslightly lowerâ for âsignificantly lowerâ in (3), producing two parallel competing stories for the EU as a whole.
This link, with chart copied below as âFigure 3â, is an example of the âEU productivity has always been significantly lower than US productivityâ story.
Note also that this chart agrees with Bergeund/âDraghiâchart also belowâabout the current state; they both show EU-wide productivity at around 82% of US productivity in the present day. Itâs the 90s that they sharply disagree about, where one graph shows 74% and the other shows 95%, almost a 1.3x gap.
****
Where does that leave the conversation about European regulation? This is just my $0.02, but:
In my opinion the large divergences of opinion about the 90s, while academically interesting, are only indirectly relevant to the situation today. The situation today seems broadly accepted to be as follows:
Western and Northern EU countriesâGermany, Austria, France, Netherlands, Belgium, Luxembourg, Denmark, Norway, Swedenâhave very similar productivity to the US.
Eastern EU countriesâmostly ex-USSR countriesâhave much lower productivity, but are catching up fast.
Southern EU countries, e.g. Italy/âSpain/âGreece, have been languishing.
(Incidentally, so has the UK. I started to look at this when trying to understand how UK productivity compared to other countries, and was surprised to learn that the gap vs. nearby European countries was very similar to the gap vs. the US.)
Creating an average productivity of around 82% of the US level
I think that when Americans think about European regulations, they are mostly thinking about the Western and Northern countries. For example, when I ask Claude which EU countries have the strongest labour rights, the list of countries it gives me is entirely a subset of those countries. But unless you think replacing those regulations with US-style regulations would allow German productivity to significantly exceed US productivity, any claim that this would close the GDP per capita gap between the US and Germanyâaround 1.2xâwithout more hours being worked is not very reasonable. Let alone the GDP gap, which layers on the USâ higher population growth.
Digging into Southern Europe and figuring out why e.g. Italy and Germany have failed to converge seems a lot more reasonable. Maybe regulation is part of that story. I donât know.
So I land pretty much where the Economist article is, which is why I quoted it:
But in aggregate, western Europeans get just as much out of their labour as Americans do. Narrowing the gap in total GDP would require additional working hours, either via immigration or by raising the amount of time citizens spend on the job.
I am eyeballing at page 66 and adding together âTFPâ and âcapital deepeningâ factors. I think that amounts to labour productivity, and indeed the report does say âlabour productivity...ie the product of TFP and capital deepeningâ. Less confident about this than the other figures though.
Unhelpfully, the data is displayed as % of 2015 productivity. Iâm getting my claim from (a) OECD putting German 1995 productivity at 80% of 2015 levels, vs. the US being at 70% of 2015 levels and (b) 2022 productivity being 107% vs. 106% of 2022 levels. Given the OECD has 2022 US/âGerman productivity virtually identical, I think the forced implication is that they think German productivity was >10% higher in 1995.
This is weird because other sources do point towards a productivity gap. For example, this report concludes that âEuropean productivity has experienced a marked deceleration since the 1970s, with the productivity gap between the Euro area and the United States widening significantly since 1995, a trend further intensified by the COVID-19 pandemicâ.
Specifically, it looks as if, since 1995, the GDP per capita gap between the US and the eurozone has remained very similar, but this is due to a widening productivity gap being cancelled out by a shrinking employment rate gap:
This report from Banque de France has it that âthe EU-US gap has narrowed in terms of hours worked per capita but has widened in terms of GDP per hours workedâ, and that in France at least this can be attributed to âproducers and heavy users of IT technologiesâ:
The Draghi report says 72% of the EU-US GDP per capita gap is due to productivity, and only 28% is due to labour hours:
Part of the discrepancy may be that the OWID data only goes until 2019, whereas some of these other sources report that the gap has widened significantly since COVID? But that doesnât seem to be the case in the first plot above (it still shows a widening gap before COVID).
Or maybe most of the difference is due to comparing the US to France/âGermany, versus also including countries like Greece and Italy that have seen much slower productivity growth. But that doesnât explain the France data above (it still shows a gap between France and the US, even before COVID).
Thanks for this. I already had some sense that historical productivity data varied, but this prompted me to look at how large those differences are and they are bigger than I realised. I made an edit to my original comment.
TL;DR: Current productivity people mostly agree about. Historical productivity they do not. Some sources, including those in the previous comment, think Germany was more productive than the US in the past, which makes being less productive now more damning compared to a perspective where this has always been the case.
***
For simplicity Iâm going to focus on US vs. Germany in the first three bullets:
I struggle to find sources claiming a large gap in current productivity between the US and Germany.
Our World in Data shows 7%
The Banque France report you linked shows 8%
Wikipedia gives two sources:
The OECD, which shows 1%
The ILO, which shows 2%
The Bergeund report you linked to shows what appears to be ~5%[1]
However, historical productivity estimates vary much more significantly.
Some, like Our World in Data, show German productivity below US productivity near-continuously, e.g. 6% lower in 1995.
Some sources claim Germany had higher productivity 20+ years ago, and combined with the slightly lower present productivity that everybody agrees on that can imply noticeably lower growth:
If you look at the charts in the Banque France report you can see an example of this, with German productivity given as 3% higher in 2000.
A striking example is the OECD, which puts German productivity >10% higher in 1995.[2]
The Bergeund report, which is also the source for a chart from Draghiâs reportâshown belowâhas around 8% higher German productivity in 1995.
So there are two competing stories, which I donât know how to adjudicate between:
German productivity used to be slightly higher than US productivity, but is now slightly lower.
German productivity has always been slightly lower than US productivity.
German productivity is higher than EU productivity as a whole, by a factor of roughly 1.15x.
So you can substitute âslightly higherâ for âslightly lowerâ and âslightly lowerâ for âsignificantly lowerâ in (3), producing two parallel competing stories for the EU as a whole.
This link, with chart copied below as âFigure 3â, is an example of the âEU productivity has always been significantly lower than US productivityâ story.
Note also that this chart agrees with Bergeund/âDraghiâchart also belowâabout the current state; they both show EU-wide productivity at around 82% of US productivity in the present day. Itâs the 90s that they sharply disagree about, where one graph shows 74% and the other shows 95%, almost a 1.3x gap.
****
Where does that leave the conversation about European regulation? This is just my $0.02, but:
In my opinion the large divergences of opinion about the 90s, while academically interesting, are only indirectly relevant to the situation today. The situation today seems broadly accepted to be as follows:
Western and Northern EU countriesâGermany, Austria, France, Netherlands, Belgium, Luxembourg, Denmark, Norway, Swedenâhave very similar productivity to the US.
Eastern EU countriesâmostly ex-USSR countriesâhave much lower productivity, but are catching up fast.
Southern EU countries, e.g. Italy/âSpain/âGreece, have been languishing.
(Incidentally, so has the UK. I started to look at this when trying to understand how UK productivity compared to other countries, and was surprised to learn that the gap vs. nearby European countries was very similar to the gap vs. the US.)
Creating an average productivity of around 82% of the US level
I think that when Americans think about European regulations, they are mostly thinking about the Western and Northern countries. For example, when I ask Claude which EU countries have the strongest labour rights, the list of countries it gives me is entirely a subset of those countries. But unless you think replacing those regulations with US-style regulations would allow German productivity to significantly exceed US productivity, any claim that this would close the GDP per capita gap between the US and Germanyâaround 1.2xâwithout more hours being worked is not very reasonable. Let alone the GDP gap, which layers on the USâ higher population growth.
Digging into Southern Europe and figuring out why e.g. Italy and Germany have failed to converge seems a lot more reasonable. Maybe regulation is part of that story. I donât know.
So I land pretty much where the Economist article is, which is why I quoted it:
I am eyeballing at page 66 and adding together âTFPâ and âcapital deepeningâ factors. I think that amounts to labour productivity, and indeed the report does say âlabour productivity...ie the product of TFP and capital deepeningâ. Less confident about this than the other figures though.
Unhelpfully, the data is displayed as % of 2015 productivity. Iâm getting my claim from (a) OECD putting German 1995 productivity at 80% of 2015 levels, vs. the US being at 70% of 2015 levels and (b) 2022 productivity being 107% vs. 106% of 2022 levels. Given the OECD has 2022 US/âGerman productivity virtually identical, I think the forced implication is that they think German productivity was >10% higher in 1995.