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

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

Author Info

Bart van Ark
Mary O'Mahoney
Marcel P. Timmer

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Marcel Peter 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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Publisher 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

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Marco Fioramanti, 2009. "Estimation and Decomposition of Total Factor Productivity Growth in the EU Manufacturing Sector: a Stochastic Frontier Approach," ISAE Working Papers 114, ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY). [Downloadable!]
Michael C. Burda & Battista Severgnini, 2009. "TFP Growth in Old and New Europe," SFB 649 Discussion Papers SFB649DP2009-033, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
Vicente Royuela & Jordi Suriñach, 2009. "Quality in work and aggregate productivity," IREA Working Papers 200901, University of Barcelona, Research Institute of Applied Economics, revised Jan 2009. [Downloadable!]

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