Friday, October 29, 2010
Why Europe Lags the U.S. in Productivity
Europe has made considerable economic progress in the past 15 years, but its per-capita gross domestic product is still $11,250 lower than that of the United States--$4.5 trillion in all. A preference for leisure time is one reason, but a widening productivity gap between Europe and the United States is the major culprit. The major reason is that market barriers and regulations have limited production over the past several years. Local services (such as retailing) alone account for two-thirds of the productivity shortfall. But Europe, boasting examples of best practice across service sectors, could reduce the gap. The trick would be for companies to emulate these examples in their own industries and for governments to help them do so by removing regulatory hurdles. From the 1960s to the mid-1990s, Europe steadily closed its productivity gap with the United States. But then the gap started widening again--and one important reason was that Europe's service sectors underperformed their U.S. counterparts.
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Part of it too is that the US had superior higher education institutions. The vast majority of the top universities in the world are in the US, which not only improves human capital within the US, but it also attracts brilliant minds from all over the world, many of which end up staying in the US. Europe also has excellent universities, but they are consistently ranked lower than those in the US.
This is a great point to make about higher education in the United States. Having all of the great higher education improves technology and boosts production. Also Europe having the preference for leisure time is not helping them at all. Americans work longer hours and retire at older ages. This is increasing the productivity as well over Europe.
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