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The Productivity Gap between Europe and the United States: Trends and Causes

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  • Bart van Ark
  • Mary O'Mahoney
  • Marcel P. Timmer

Abstract

Since 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.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.22.1.25
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 22 (2008)
Issue (Month): 1 (Winter)
Pages: 25-44

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Handle: RePEc:aea:jecper:v:22:y:2008:i:1:p:25-44

Note: DOI: 10.1257/jep.22.1.25
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  1. J. Christina Wang & Susanto Basu & John G. Fernald, 2009. "A General-Equilibrium Asset-Pricing Approach to the Measurement of Nominal and Real Bank Output," NBER Chapters, in: Price Index Concepts and Measurement, pages 273-320 National Bureau of Economic Research, Inc.
  2. Robert Inklaar & Marcel P. Timmer & Bart van Ark, 2008. "Market services productivity across Europe and the US," Economic Policy, CEPR & CES & MSH, vol. 23, pages 139-194, 01.
  3. Marcel P. Timmer & Mary O’Mahony & Bart van Ark, 2007. "EU KLEMS Growth and Productivity Accounts: An Overview," International Productivity Monitor, Centre for the Study of Living Standards, vol. 14, pages 71-85, Spring.
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