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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