The competitiveness of the European economy: Is the U.S. increasing its lead?

In terms of per capita income and employment levels, the normal macroeconomic indicators for an economy's competitiveness, the European economy has clearly lagged behind the U.S. economy for some time. In contrast to the past forty years, which show a clear catching-up process in Europe and Japan, the gap began to widen in the 1990s. The growing gap in competitiveness is not primarily due to the American economy's superior ability to create jobs but rather because American industry was able to improve labour productivity at a faster pace than in Europe and Japan. Firstly, the U.S. profited from its lead in the use of digital information and communication technologies vis-à-vis Japan and Europe. IC industries are most advanced in the U.S. Productivity growth is high in IC industries and has demonstrably accelerated. Because of the large weight of this sector, this has contributed to an acceleration of productivity growth in the U.S. economy. Secondly, Europe and Japan experienced growth disturbances in the wake of external shocks that have dampened productivity growth. Owing to close economic and political ties, Europe was more strongly affected by the collapse of the Soviet economic system than the U.S. With its relatively inflexible labour and capital markets, Europe was less well prepared to deal with these and other shocks. The lack of flexibility and the market access restrictions that were still in effect in the 1990s constrained the development of the new economy in Europe.