The Productivity Gap between Europe and the United States: Trends and Causes
AbstractSince the mid-1990s, labor productivity growth in Europe has significantly slowed compared to earlier decades. In contrast, labor productivity growth in the United States accelerated, so that a new productivity gap has opened up. This paper shows that this development is attributable to the slower emergence of the knowledge economy in Europe. We consider various explanations which are not mutually exclusive. These include lower growth contributions from investment in information and communication technology; the small share of information and communications technology-producing industries in Europe; and slower multifactor productivity growth, which proxies for advances in technology and innovation. Underlying these are issues related to the functioning of European labor markets and the high level of product market regulation in Europe. The paper emphasizes the key role of market service sectors in accounting for the productivity growth divergence between the two regions. We argue that improved productivity growth in Europe's market services will be needed to avoid a further widening of the productivity gap.
Citationvan Ark, Bart, Mary O'Mahoney, and Marcel P. Timmer. 2008. "The Productivity Gap between Europe and the United States: Trends and Causes." Journal of Economic Perspectives, 22 (1): 25-44. DOI: 10.1257/jep.22.1.25
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- O30 Technological Change; Research and Development; Intellectual Property Rights: General
- O47 Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
- O57 Comparative Studies of Countries