Gabriel Zucman

It has become received wisdom in Brussels and Washington that there is a new “euro-sclerosis”: that the EU economy is lagging the US

This view is wrong

A little primer on the measurement of productivity – and why reports of the economic death of Europe are greatly exaggerated🧵

A lot of the “eurosclerosis” discourse is based on comparing GDP in nominal US$ in Europe vs US

Yesterday, the US ambassador to the EU compared Europe’s GDP per capita to that of Mississippi

This makes little sense, because it ignores the higher cost of living in the US

Adjusted for the difference in price level, GDP per capita has grown 70% in the US since 1990 vs. 63% in the EU27

This corresponds to an annual growth rate of 1.6% in the US vs. 1.5% in the EU.

The US has been doing better post-Covid, but over the medium run no big divergence

To be sure, there is a large gap in the ~level~ of GDP per capita:

US GDP per capita is 35%-40% higher than in the EU

But that gap is overwhelmingly due to the fact that people work fewer hours in the EU – not that Europeans are less productive

To see that, we can look at domestic output per hour worked – the standard measure of productivity

These productivity numbers have their limits, that I’ll get back to

But let’s look first at the 6 “core” EU countries: Germany, France, Italy, Spain, Netherlands, Belgium

Core EU has 290 million inhabitants: it's a bit smaller than the US (340m) but not much so

The key fact is that productivity in this core EU is essential the same as in the US:

€60 per hour (corrected for price differences) using the most recent data :

You can get slightly different numbers with older series, different price indices, different measures of output, etc.

But none of this fundamentally changes the basic fact that  “core EU” is about as productive as the US

Now with the same productivity as the US, “core EU” also has more leisure time, higher life expectancy, less inequality

No matter how you look at it, it is a clearly superior economic performance

If we add the rest of the EU, then we have an economy with 450 million inhabitants, significantly larger than the US

In that bigger economy, productivity is slightly lower than in the US, because of relatively low productivity in Eastern Europe

Even so the difference is modest

For instance, in the ILO statistics, GDP per hour worked in $81.8 in the US, $83 in Western Europe, and $71.1 in the EU27

And there is no sclerosis: in the medium-term productivity is growing at the same pace in Europe and the US

Side note: International agencies like ILO measure productivity by dividing gross output (GDP) by the number of hours worked

WIL focuses on net output (GDP minus capital depreciation)

This is more meaningful: producing assets that depreciate fast is not particularly productive

This explains why the productivity numbers are lower in WIL (and the US-EU27 gap a bit lower too)

More importantly, all of these numbers over-estimate the productivity gap between US and EU27: 

There is in fact a good case to be made that EU27 is more productive

Why?

Because neither ILO, OECD, WIL, etc. subtract the depreciation of natural capital 

The US produces $81 of gross output per hour, but at a particularly high cost for the planet

The EU27 produces $71 of gross output per hour, but with dramatically less carbon emissions

More leisure, better health outcomes, less inequality, less carbon emissions, all of which with broadly similar productivity:

The EU can be proud of its development model, and the Trumpists (and European conservatives that echo them) should keep it down a bit

Which does not mean that the EU needs no reform: 

The key priority should be to invest massively in education, universities, research, public infrastructure, and energy transition

The key to its future productivity and prosperity

/end

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Abonnez-vous !

We hear it all the time: 

Since the turn of the 2010s, thanks to the rise of tech, the US has pulled ahead economically.

This idea is everywhere from Washington to Davos—and it's paralyzing Europe

But it's simply not true!

Let's look at what's really happening, with charts🧵

I’m going to focus on the most basic macroeconomic statistics of the US.

The numbers are taken from the official national accounts of the Bureau of Economic Analysis.

Everything is in the open for everyone to see, and straightforward to compute.

Let’s look first at income growth in the US, using the broadest and most internationally comparable measure of income: national income

The growth of US national income is bad.

Very bad!

National income per adult has increased 1.1% per year on average over the period 2010-2025

But we hear all the time that GDP is growing 2% or 3%, so how is that possible?

That’s because the US population is growing (especially the adult population, age 20+)

GDP has grown 2.3% a year since 2010

But GDP per adult only 1.3%

To get to national income you need to subtract capital depreciation from GDP, and add net foreign income

Each of these steps shaves off an additional 0.1 percentage point of growth, leading to the per-adult national income growth rate of 1.1%

Net foreign income, in particular, has collapsed since 2010, largely because the US has accumulated an enormous international debt

Look at the US's net foreign asset position! (= assets owned by the US abroad, minus US assets owned by foreigners)

Back to GDP: 

There is no productivity miracle in the US.

The growth of productivity (= GDP per hour worked) has slowed down markedly.

From 1.9% in the period 1980-2010 to 1.1% in 2010-2025

If you think the rise of tech has made people more productive, think again

Because productivity is not growing fast, wages are not growing fast either:

+1.1% a year, again, since 2010

Profits used to grow fast in 1980-2010 –  much faster than labor income  – but that's not the case anymore since 2010:

Capital income is also growing at 1.1% a year.

Sluggish growth everywhere.

The one thing that is growing extremely fast is the wealth of the top billionaires:

The top 0.00001% used to own the equivalent of 3% of national income in wealth in 2010

Now they own the equivalent of 12% of national income!

Scott Bessent says that "the US projects strength."

The reality is US growth is at a historically low level, productivity gains are sluggish &amp; the net foreign debt surging.

And this is only sticking to macro: I will discuss inequality in a future thread.

/end