April 30, 2002

International Productivity Comparisons

It's Amazing What You Can Learn from the Manchester Guardian These Days... "What Europe can teach Uncle Sam." In the second extract from his eagerly awaited new book, Will Hutton reveals why the American economic miracle is not all it seems. Monday April 29, 2002. The Guardian.

"... In some respects, it would be surprising if the US was not successful. It is a continent of 280 million people who share the same language, government, unified market and legal system. Throughout the 20th century, its companies have produced on a scale unknown in other countries, taking advantage of the simple rule that the more you make, the lower the unit cost. Yet in reality the US is no more productive than many European economies. Although little reported, during the past 20 years, output per hour worked in France, the Netherlands, Belgium and the former West Germany has risen so that it is now higher than in the US, because the Europeans have invested more and organised their businesses more effectively..."

(To order a copy of The World We're In, Published by Little, Brown, for £14.99 plus p&p (rrp £17.99), call the Guardian book service on 0870 066 7989. Delivery is 99p or £1.99 for 1st class.)

This American observer has a very different view of the statistics than does Will Hutton. Consider Belgium, for example: this observer thinks that Belgium has a higher output per hour worked than the U.S. because the Belgian government keeps Belgians who want to work but lack skills from getting jobs.

In Belgium in 1997 real output per hour worked was 8% higher than in the United States, but where we also think that material standards of living--output per capita--was 28% higher in the U.S. Why these huge differences between the numbers? First of all, 6 percentage points more of Belgians want jobs and can't find jobs than in the United States. And labor force participation rates are different. An astonishing 28 percentage points less of Belgians aged 15-64 are in the labor force than in the United States. Are all of these out-of-the-labor-force Belgian women and young men really happy with their out-of-the-labor-force status? Or are they out of the labor force because they think it would be hopeless to look for a job?

My back-of-the-envelope hunches are that all of differences in unemployment and one-third of differences in labor force participation represent social waste: enforced idleness that leaves Belgians no happier than if they were working. In my view, the right number is neither the +8% Belgian edge "output per hour worked" nor the +28% U.S. edge "output per capita" but instead a U.S. edge of 7% arrived at by taking account of involuntary unemployment and discouraged workers. A large chunk of the +28% U.S. edge in the often-cited "output per capita" figure is an illusion, due to the fact that Europeans choose and enjoy a more leisurely and slower-paced style of life. But in my view, at least, not all of the edge is an illusion.

My main point, however, is that the world is complicated, and single statistics are bound to be incomplete. There is immense regional inequality within the United States. There are important and and often-debated issues of measurement, and even of what we are trying to measure involved in international comparisons. Anyone who presents to you one single number for a nation--and then draws sweeping conclusions from it--is interested in driving you into the corral as if you were a panicked sheep. Don't pay attention to such people. Seek out those who regard it as their highest priority to give you a full picture, a thick description of the situation instead.

Posted by DeLong at April 30, 2002 03:28 PM | TrackBack


I am looking for a productivity measure and compare it to a standard for S.Korea

Posted by: Ed Vaisman on June 19, 2003 05:44 PM
Post a comment