The Great Divide: productivity dynamics in the United States and the euro area after the pandemic

US and euro-area (EA) productivity trends diverged from the mid-1990s to the late 2000s. The US experienced rapid growth driven by information and communication technology (ICT) advancements, while the EA, particularly Italy, lagged. After the Great Financial Crisis, the gap narrowed as US productivity slowed. However, the pandemic renewed this divergence, with US productivity-driven GDP growth far exceeding that of the EA. The divide stems from multiple factors. First, the energy crisis disproportionately affected intermediate goods prices in the EA, dampening productivity. Second, ICT played a much larger role in US productivity growth, despite its small economic weight. Third, the US outpaced the EA in both Total Factor Productivity (TFP) and capital intensity, especially in ICT investments. Contrary to some views, business dynamism alone does not explain the US acceleration. Additionally, Europe's short-term work schemes, while aiding labor market recovery, may hinder structural reallocation, though their overall impact on Italy's low productivity remains limited. Ultimately, longstanding structural differences continue to drive the transatlantic productivity gap.