European Union Shows Productivity Gains, But U.S. Continues To Lead

Press Release / News

Jan. 19, 2005

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The European Union, spurred by gains by both its old and newest members, has registered rising productivity growth, but it still significantly trails the United States, The Conference Board reports in a new productivity study released today.

Productivity in the EU-25 nation bloc grew from 1.3% to 1.6% in 2004 and labor input growth increased from an anemic -.2% to .7%.

“The turnaround in 2004 in both productivity and employment growth is welcome news for the EU,” says Dr. Bart van Ark, Consulting Director at The Conference Board and a co-author of the report with Dr. Robert McGuckin, The Conference Board’s Director of Economic Research. “If Europe, the world’s second largest economy, is going to provide the leadership and drive needed for global prosperity as stated in its Lisbon goals, the 2004 results must be sustained and improved upon. Although European GDP growth was about 2.3% in Europe in 2004, this lags the growth rates achieved in the U.S. and Japan and is far below the growth rates registered in fast-growing countries such as China and India.”

The Conference Board report provides comparable measures of productivity for 97 countries, a powerful indicator of economic efficiency. Labor productivity, which measures how much output is obtained for each hour of work, determines a nation’s living standards (as measured by per capita income). The more hours people work and the higher the level of productivity, the higher is per capita income.

The old EU-membership (EU-15) increased productivity growth from .9% to 1.3% from 2003 to 2004. Simultaneously, it recovered from negative growth in total hours worked (-.2% in 2002 and 0% in 2003) to a positive .8% growth in 2004. The new EU-membership (EU-10) accelerated their hours worked growth to .4%, a rate well above the -1.8% decline experienced over the previous three years and a significant rebound from negative growth throughout the 1990's. The new member states from Central and Eastern Europe were also able to maintain a very high productivity growth of on average more than 4% as structural reforms continue.

Despite its improved performance, the EU significantly trails the U.S. in productivity gains. The U.S. improved both labor productivity and labor input at about double the EU growth rates. The U.S. maintained a high productivity growth rate of 3.1% in 2004. With a big employment turnaround—shifting from a .1% average growth over the last 3 years to 1.4% in 2004—the jobless recovery appears to be over in the U.S.

After losing hours at a rate of .5% in 2003, the U.S. showed substantial job growth, 1.4%, in hours worked in 2004. The U.S. is coming out of a full blown recession which partly reflects this improvement.

On average, the productivity level of the EU-15 was at 92% of the U.S. level in 2004, down from 99% in 2000 and 100% in 1995. This decline reflects both the relatively slow pace of European productivity growth and the acceleration of U.S. productivity gains after 1995. Still, six European countries—Luxembourg, Norway, Finland, Ireland, Belgium, and the Netherlands—exhibit higher productivity levels than the U.S. in 2004.

While the productivity gap between the EU-15 and the U.S. is 8 percentage points in 2004, the per capita income gap is 28 percentage points. With the exception of Luxembourg, no European country has turned this relatively high productivity into a per capita income higher than the U.S. This is because EU countries have a smaller fraction of the population employed than the U.S., and those that are employed generally work fewer hours.

From 2000-2004, the U.S. Gross Domestic Product growth came primarily from increased labor productivity (2.9%). Hours worked for this period fell -.4%, resulting in GDP growth of 2.5% for 2000 to 2004. During this period, the EU-15 showed GDP growth of only 1.4% with productivity growth at 1% and hours worked at .4%.

Japan, Mexico, Korea ….

The Japanese recovery continued with productivity growth at 3.6% in 2004, following a rebound from 2.7% in 2003 and lackluster productivity growth of 1.7% and 1.6% in 2001 and 2002. After 3 years of negative growth, hours worked rose at .3%. As a consequence, GDP growth reached 3.9% for 2004, up from about 2.7% in 2003.
Mexico shows remarkable recovery in productivity and employment growth to 2.5% and 1.7% respectively in 2004. This is a strong turnaround from a near zero average productivity growth between 2001 and 2003.
Korean productivity growth slowed to the same growth rate as the U.S. (3.1%), but with faster employment growth at 1.8%.
In Turkey, negative hours worked growth rebounded to positive growth of .6%. Turkey showed an astounding 9.1% growth rate in labor productivity in 2004, generating GDP growth above 10%, a rate higher than any of the Asia economies, including China.
New Zealand also had a good year. It continued its high labor input growth (2.6% from 2000-2004) and more than doubled its productivity growth rate to 2.1%.

Source: European Union Labor Productivity and Employment Growth Show Improvement in 2004 Executive Action No. 129, The Conference Board

To receive a PDF of the report, contact: f.tortorici@conference-board.org, sandra.lester@conference-board.org, or nicky.barrett@fishburn-hedges.co.uk.

About The Conference Board

The Conference Board is the leading global business knowledge network for the world’s largest corporations. The Conference Board is dedicated to helping companies improve performance and strengthening the role of business in society. More than 2,000 companies in 60 countries are members of The Conference Board, which produces the Consumer Confidence Index, the Help-Wanted Index and Business Cycle Indicators for nine countries worldwide.

About The Authors

Robert H. McGuckin is Director of Economic Research at The Conference Board, and an expert on productivity, industrial organization, economic indicators and statistics. Formerly, Dr. McGuckin was chief of the Center for Economic Studies at the U.S. Bureau of the Census, where he guided development of the Longitudinal Research Database, produced significant research on productivity growth, and headed a broad research program in statistics and economics.

Bart van Ark is a Consulting Director for The Conference Board’s international economic research program and a recognized expert on international comparisons of productivity and living standards. Dr. van Ark is Professor of Economics at the University of Groningen (The Netherlands), where he plays a key role in the international Comparisons of Output Productivity project. His work focuses on Europe, North America and Asia.

Source: The Unique Challenges of Developing World-Class Business Leaders in Asia Pacific, Executive Action Number 114, The Conference Board

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For further information contact:
Bart van Ark

bart.vanark@conference-board.org

Frank Tortorici
(1) 212 339 0231
f.tortorici@conference-board.org

Toni Spera
212-339-0320
toni.spera@conference-board.org