Europe's productivity keeps outpacing the US
3 hours ago
- #Economic Statistics
- #Productivity Comparison
- #GDP Measurement
- The narrative of European economic stagnation compared to US productivity growth, often called 'Eurosclerosis,' is widely accepted but may be flawed due to data inconsistencies.
- Two key GDP series exist: current-price PPP (for cross-country comparisons at a single point) and constant-price PPP (for comparisons over time), which tell conflicting stories about Europe's relative performance.
- Current-price PPP data show Europe's GDP nearly identical to the US's in 2004, 2014, and 2024, suggesting stable performance, while constant-price data indicate Europe was richer relative to the US in the past, declining over time.
- The constant-price series extrapolates past GDP using national growth rates, assuming comparability across countries, but national price statistics (e.g., for mobile phones or TVs) vary widely due to differing measurement methods, leading to inconsistencies.
- The Penn World Table's 'rgdpo' metric addresses these issues by using ICP price-level trends and interpolating between rounds, showing Europe's productivity gaining on the US's, not lagging, with figures like 92-98% of US levels in recent decades.
- International organizations like the World Bank and OECD may resist adopting methods like rgdpo to avoid creating 'two GDP growth rates,' akin to historical disputes, despite technical criticisms dating back to reports like the 1998 Ryten Review.