The Productivity Gap between Europe and the United States: Trends and Causes (original) (raw)

Productivity Growth in Europe and the US: a Sectoral Study

Review of Economics and Institutions, 2010

This paper describes recent trends in productivity growth in the EU and the US. By adopting a sectoral perspective, we achieve a deeper understanding of the compositional patterns of aggregate growth and shed light on the reasons why the EU productivity has lagged behind the US during the period 1995-2007. This may be of use for policy makers in order to design policies to close the gap. Whilst our findings indicate that performance in manufacturing sectors of many EU countries has been strong, we observe notable disadvantages in relation to productivity performance of key market service sectors. Restrictions in product and labour markets prevailing in many EU countries have been put forward as potential factors causing poor productivity; research shows that these can have particular harmful effects in services sectors given their large size and inter-linkages to other sector of the economy.

Productivity Growth Rates in Europe and the USA: A Tale of Convergence in the 21st Century

2010

In mid 90’s, productivity growth rate started to accelerate in the USA. The sources of this resurgence were the IT-producing industry and the IT-using market services. Meanwhile, Europe was still suffering from the low level of productivity growth rates. This fact leads to pessimistic assessments about the economic future of Europe. However, this paper uncovers that productivity growth rate started to accelerate after 2000 in the EU-15ex which consists of Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Spain and United Kingdom. In fact, it is hard to realize the acceleration in the productivity growth rate in early 2000’s because of the low level of productivity growth rate in this period. However, the productivity growth rate of the EU-15ex reached to the US productivity growth rate in mid 2000’s. The major source of this convergence is the IT-using market services. In addition, acceleration of the productivity growth rate of IT-producing industry has conti...

The EU-US total factor productivity gap : An industry-level perspective

Cepr Discussion Papers, 2009

The EU-US total factor productivity (TFP) growth gap since the mid-1990's is concentrated in a handful of market service industries (most notably retail trade) and in ICT-producing manufacturing, whilst the EU exhibits a stronger performance in a number of the network utilities. This paper explores the industry-specific determinants of the EU-US TFP growth gap using the EU KLEMS database. As found in previous analyses (e.g., Nicoletti and Scarpetta (2003); Griffith, Redding, and Van Reenen (2004); Inklaar, Timmer and Van Ark (2008)), TFP growth appears to be driven by catching-up phenomena associated with the gradual adoption of new-vintage technologies. Compared with previous analyses, TFP growth is also significantly driven by developments taking place at the "technological frontier", increasingly so since the mid-1990's. Industries with higher R&D expenditures and higher adoption rates for ICT-intensive technologies appear to exhibit higher TFP growth rates, whilst human capital has mostly a significant effect across countries. Regarding industry specific determinants, ICT producing industries appear to benefit from R&D in terms of stronger spillovers from TFP gains at the frontier; network utilities are strongly affected by improvements associated with reduced product market regulations; whilst the retail trade industry is significantly influenced by consumption dynamics which permit a better exploitation of scale economies.

US-Europe Differences In Technology-Driven Growth: Quantifying the Role of Education* 1

Journal of Monetary Economics, 2004

European economic growth has been weak, compared to the US, since the 80s. In previous work (Krueger and Kumar, 2003), we argued that the European focus on specialized, vocational education might have been effective during the 60s and 70s, but resulted in a growth gap relative to the US during the subsequent information age, when new technologies emerged more rapidly. In this paper, we extend our framework to assess the quantitative importance of education policy, when compared to labor market rigidity and product market regulation, other policy differences more commonly suggested to be responsible for US-Europe differences. A "decomposition" exercise using a calibrated version of our model assigns a major role to education policy in explaining US-Europe growth differences.

Catching up or getting stuck? Europe's troubles to exploit ICT's productivity potential

2006

In this paper we extend our previous analysis of the comparative productivity performance of Europe and the U.S. to 2004, thereby covering the latest full business cycle. Our main finding is that the slower contribution of ICT to productivity growth in the EU compared to the U.S. has persisted into the early part of the 21st century. The growth differential even increased since 2000, as the U.S. shows strong labour productivity advances in market services. This may be related to a more productive use of ICT in the U.S.. However, at industry level we find no support for significant TFP (total factor productivity) spillovers from ICT investment, neither in the U.S. nor in European countries. In the 1980s we even find that ICT investment and TFP growth are negatively related, with at best normal returns in the 1970s and 1990s. We speculate that this U-shaped pattern is driven by "hard savings" from ICT investment that first lead to earning normal returns, followed by a period of experimentation during which ICT and TFP growth are negatively related. Ultimately, "soft savings" lead to productivity gains from ICT in line with the marginal cost of ICT. We argue that the realization of productivity effects from soft savings is highly dependent on the competitive process that stimulates complementary innovations and weeds out inefficient users of ICT technology. Europe risks getting stuck in an environment where the productivity gains from soft savings from ICT remain unrealized. 2 The trend growth in productivity for both the U.S. and the EU-15 was estimated using historical annual data from 1979-2004. The Hodrick-Prescott (1997) filter we employ separates the cyclical effects from the long-term, or structural, component of productivity growth. Business cycles in the U.S. and the EU are not completed synchronised but the divergent trend growth rates are clear. Note that the trend estimates for especially the final two years are less reliable than for earlier years.