December 4, 2002
GIGO:
The Slow Countries: US productivity keeps growing--right through the bust. So what's wrong with Europe? (Bradford DeLong, Wired)Over the past seven quarters, the US unemployment rate has risen 1.8 percent. In every previous recession, such a large rise has been accompanied by falling real GDP. But the past seven quarters have seen real GDP rise 3.1 percent. Even in a full-fledged unemployment recession, with the number of jobless growing by half, production keeps rising because US productivity growth is so strong: The official rate for 2002 could hit 5 percent.But in Europe? Last year, real GDP grew only 1.5 percent, even though the average unemployment rate fell 0.8 percentage points and total hours grew 1.4 percent--that's a zero on labor productivity. This year, western Europe's real GDP will grow less than 1 percent, and unemployment will rise by half a point. Europe's productivity grew faster than America's from the end of World War II until 1995. Since then, the growth has been remarkably slow.
Turns out the productivity gap is due to wholesale and retail trade, financial transactions, and other service industries that intensively use information and communications technology. Measured American labor productivity growth in these sectors accelerated from 1.6 to 4.8 percent per year between the early and the late '90s, while European productivity growth in ICT-using services remained stuck at a paltry 0.8 percent. Applying this technology to distribution drove US companies like Wal-Mart, Amazon.com, and Lands' End to lead our productivity revolution. It's not that the rest of the computer-intensive American economy is doing badly: Productivity acceleration in ICT-producing manufacturing has grown even faster, and the evidence in ICT-using manufacturing is clear as well. The big difference between the US and Europe is that the US has been using ICT to improve service sector productivity, and western Europe has not.
Given the massive differential in hours worked per week and year by Americans as opposed to Europeans, mightn't it also be worth investigating the possibility that Americans use technology to get more work done while Europeans use it so as to not have to work as hard to get precisely the same amount of work done that they were before? Can't the explanation be tied to culture, rather than just computers? Posted by Orrin Judd at December 4, 2002 12:54 PM
Now, there is a decent "on the other hand" reason why productivity can go up with rising unemployment-- if the worst-run businesses go out of business, and the surviving businesses fire their least-productive employees, then average productivity should rise.
This is part of why Europe traditionally has fairly good productivity rates-- the least productive don't work and stay on welfare. In the long run, of course, they never get ahead or learn to be more productive.
Productivity rates should always go up when unemployment rises. How many people really have jobs where they couldn't do the work of the person to their right also?
Posted by: oj at December 4, 2002 3:41 PMEurope's productivity growth is slow because they have strangled their economy in regulations intended to block change. If you can't change anything, you can't become more productive. Here, Walmart can put thousands of stores out of business and their clerks and owners out of work, and nary a politician or regulator complains.
Posted by: pj at December 4, 2002 4:37 PMI was talking about productivity last night with a friend who runs workplace development here. The really weird question about the U.S. economy -- going back to before there was a U.S. -- is to explain why, except for a few years around 1933, it has always been dreadfully short of labor.
Easy resources explains a part, my friend says.
I contend we work hard because we confer status on wealth, unlike places where you can be a "man of respect" even if you have to hold your trousers up with a piece of string.
But we agreed we don't know why labor has always been so short here.
The world is full of economic opportunities; labor is short here because Americans try to seize as many economic opportunities as we can. Labor is overabundant in France because they try not to seize opportunities.
Posted by: pj at December 4, 2002 5:21 PMHarry:
Doesn't our refusal to reward non-work have to have something to do with it? Hell, I'd go on the dole if I could.
Maybe partly. But I can think of countries that
are famous for the individual entrepreneurial
instincts of their common people -- Russia,
China and Nigeria come to mind at once.
Yet none is famous for productivity, economic
growth.
I have been studying labor history for over 30
years, and I still find it mostly mysterious.
(Being a union president, as I was once, in a
notoriously antiunion sector, gave me
experiences that make me question a lot of
the stuff the economists propose.)