Tuesday, January 11, 2005

European Productivity is Much Better than you Think

Speaking of French economists... Olivier Blanchard has some interesting ideas about Europe.

It is fashionable to bash Europe for its rigidities and its unrealistically generous welfare states, but there is another side to this story. While the rigidities and the unsustainable promises are real, and it is true that Europe’s income per capita is stuck at around 70% of the US in PPP terms,

“Over the last 30 years, productivity growth has been much higher in Europe than in the United States. And productivity levels are roughly similar today in the EU and in the United States.

The main difference is that Europe has used some of the increase in productivity to increase leisure rather than income — while the United States has done the opposite...

The stability of the U.S.-EU gap in relative income on a per capita basis comes from the decline in hours worked. To be specific, in the United States, over the period 1970 to 2000, GDP per hour increased by 38%. Hours worked per person also increased, by 26%. Thus, GDP per person increased by 64%.

In France, over the same period, GDP per hour increased by 83%. But hours worked per person decreased by 23% — so GDP per capita only increased by 60%...

Viewed in that light, the performance of France — and of the European Union in general — does not look so bad. The EU had a much higher productivity growth rate than the United States. And the EU countries chose to allocate part of those gains to increased income — and part to increased leisure.

You can also find a presentation titled “economic survey of Europe” here.


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