US Productivity Advantage Widens

February 1 2002 - A study by the Conference Board shows that U.S. productivity continued to outpace most other countries and that information and communication technologies were the major drivers of U.S. productivity growth.

2001 was a year of economic turmoil but, despite the sharp slowdown in Gross Domestic Product, U.S. labour productivity growth rose 1.8% against an average 0.9% for the member nations of the Organization for Economic Cooperation and Development (OECD). Meanwhile, average productivity grew by only 0.6% in the European Union during 2001 - half the growth between 1995 and 2000.

U.S. output per hour in 2001 was $4.67 higher than the European Union, up from $4.21 in 2000 and $2.86 in 1995.

"While the European Union continued its strong employment expansion of the last 6 years, it is still registering slow productivity growth," says Bart van Ark, Consulting Director for International Economic Research at The Conference Board and a Professor at the University of Groningen.

Japan has suffered a decade of stagnation, losing ground to both the USA and the European Union. In fact, during 2001 productivity growth even turned negative, at -0.3%. The country’s productivity relative to the U.S. dropped to 72% in 2001 from about 74% in 2000. Japan’s productivity was $5.66 per hour lower than the EU and $10.33 behind the USA.

The Czech Republic, Hungary, and Poland improved their productivity in 2001 by between 2.6% and 3.2% - considerably more than the 0.6% recorded by the average EU member state. But they still trail the EU by about 60%.

Overall, the comparative performances of OECD countries were widely divergent since the mid-1990’s reflect a break in a long-term convergence in productivity levels.

"Following World War II, most OECD economies were 'catching-up' with the U.S.," says Robert H. McGuckin, Director of Economic Research at The Conference Board and a co-author of the report. "This process was particularly rapid in the 1960’s and continued until the 1990’s. Since about 1995, information and communications technology-driven U.S. productivity growth has brought convergence to a standstill, with some notable exceptions like Ireland and Finland."

Productivity and per capita income

Labour productivity is clearly connection to living standards as measured by per capita income: the more hours spent on work and the higher the level of productivity, the higher is per capita income.

EU labour productivity in 2001 came within 13% of the U.S. level (in fact, four European countries had even higher productivity levels than the USA) but this did not translate into comparable personal wealth. Average per capita income in the European Union was 33% below U.S. levels in 2001 - only Switzerland, Norway, and Denmark had income levels within 20% of the U.S. figure.

According to McGuckin: "These figures mean that Europe is not translating its productivity into per capita income at the same rate as the U.S. as a result of shorter workweeks and lower percentages of the population working, despite Europe’s recent rise in labour input."

Based on: Performance 2001: Productivity, Employment, and Income in the World’s Economies, Report No. 1313-02-RR, The Conference Board.

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