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There's a related NBER Working Paper by Olivier Blanchard (March 2004). The abstract says:
After three years of near stagnation, the mood in Europe is definitely gloomy. Many doubt that the European model has a future. In this paper, I argue that things are not so bad, and there is room for optimism. Over the last thirty years, productivity growth has been much higher in Europe than in the United States. Productivity levels are roughly similar in the European Union and in the United States today. The main difference is that Europe has used some of the increase in productivity to increase leisure rather than income, while the U.S. has done the opposite. Turning to the present, a deep and wide ranging reform process is taking place. This reform process is driven by reforms in financial and product markets. Reforms in those markets are in turn putting pressure for reform in the labor market. Reform in the labor market will eventually take place, but not overnight and not without political tensions. These tensions have dominated and will continue to dominate the news; but they are a symptom of change, not a reflection of immobility.
There was some criticism levelled against Blanchard's argument that Europeans simply changed the mix of wages and leisure, because many of the changes were involuntary (on individual level). Thus, one would overestimate Europeans' welfare by assigning value equal to net-of-tax wage rate to an additional leisure hour. On the other hand, Europeans continue voting for the governments that mandate a rather short (relative to the USA) working week and working year, and so I'm not sure how involuntary it actually is in the end.
The same is really true for me on the productivity numbers, in the sense of understanding what the numbers really mean, with this movement into service industries. How does the productivity of the whole fiancial community figure into this--how do you measure an investment banker, a venture capitalist, individual private equity (angel investment) investors into this equation? Unfortunately it will have to wait.
Do you have any comment on why if productivity is the same, US vs EU (and I agree that is statistically true), why the gdp per capita and per employee would be so much higher? I think it's in the range of 15-20% higher, is it not? Maybe it's American's moving into higher value jobs more quickly, like technology and the financial services?
Per capita hours fell during 1970-2002 for most OECD countries and by over 20% in France; but they rose in several countries, and by fully 20% in the United States... Two factors underlie the divergence between the United States and Europe since 1970 in hours worked per capita. First, hours worked per capita are influenced by the share of the population actually working, and the employment rate has increased more strongly in the United States than in most other OECD countries.... Secondly, the length of the average work year has not declined as much since 1970 in the United States as it has in most European countries, including France and Germany. In fact, annual hours per employed person have remained more or less unchanged for US workers since 1980. By contrast, reductions in the length of the standard work week have continued in most other high-income countries, as have increases in annual days off for public holidays and vacation.
Two factors underlie the divergence between the United States and Europe since 1970 in hours worked per capita. First, hours worked per capita are influenced by the share of the population actually working, and the employment rate has increased more strongly in the United States than in most other OECD countries....
Secondly, the length of the average work year has not declined as much since 1970 in the United States as it has in most European countries, including France and Germany. In fact, annual hours per employed person have remained more or less unchanged for US workers since 1980. By contrast, reductions in the length of the standard work week have continued in most other high-income countries, as have increases in annual days off for public holidays and vacation.
In short, Americans work more, both as a nation and as individuals. Not a big surprise they produce more.
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