Quick Bites | US beats Europe in productivity

The US has widened its productivity lead over Europe, sparking fears in the EU that it faces a “competitiveness crisis” as policymakers call for greater public and private investment.

Labour productivity growth in the US has been more than double that of the eurozone and UK in the past two decades. New data showed Eurozone productivity fell 1.2% in the fourth quarter from a year earlier, while in the US it rose 2.6% in the same period.

Europe is not showing the same dynamism as the US, and there is a widening gap between the two. Economists argue that the US is growing faster than the Eurozone because its population is younger, growing more rapidly and working longer hours, and its businesses are faster in implementing technological innovation.

A big part of the output gap is because people in the US produce more for each hour that they work. Output per hour worked, a standard measure of labour productivity, has grown more than 6% in the US non-farm business sector since 2019, outperforming the Eurozone and UK, which have seen growth of around 1% over the same period.

Source: Financial Times 

The recent jump in US productivity comes after a massive fiscal stimulus centred on green industry, a strong period of re-hiring and a surge in new business formation during and since the pandemic ended.

By contrast, the Eurozone has received less fiscal support from governments while suffering a much bigger rise in energy prices as a result of Russia’s invasion of Ukraine. The fragmentation of Europe’s financial markets, fiscal policy and regulation also makes it more exposed to external pressures than the US.

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