Economist Says Europe Held Productivity Gap Near 87% of U.S. Despite 25 Years of Slower Growth
Updated
Updated · Paul Krugman | Substack · May 21
Economist Says Europe Held Productivity Gap Near 87% of U.S. Despite 25 Years of Slower Growth
4 articles · Updated · Paul Krugman | Substack · May 21
New PPP-based comparisons show euro-area output per hour stayed broadly stable against the U.S.—about 86% in 2000 and 87% in 2024—undercutting claims that Europe has sharply fallen behind.
The argument hinges on measurement: constant-price productivity data make Europe look weaker, while current-price purchasing-power comparisons better capture the value of what each economy produces at a given time.
An 8% U.S. IT sector explains much of the gap in conventional growth metrics because rapid tech productivity gains push down IT prices, lifting measured U.S. productivity without necessarily widening Europe’s living-standard gap.
That means Europe’s bigger risk is not missing headline productivity growth but losing access to strategically important technologies as U.S.-China rivalry deepens and the rules-based trading order frays.
Is Europe's push for 'digital sovereignty' a viable strategy or a costly delay in the face of U.S. and Chinese tech dominance?
As Europe builds its digital fortress, is the greater risk foreign domination or self-inflicted isolation in the global tech race?
Bridging the US-Europe Productivity Divide: Regional Disparities, Innovation, and the Path Forward (2024)
Overview
The 2024 US-Europe productivity gap remains significant, but Europe itself is far from uniform—regional differences in productivity are substantial and often hidden by EU-wide averages. This gap is driven by Europe's lower investment in technology and innovation, as well as slower adoption of advanced digital tools compared to the US. These disparities are not just between continents but also within Europe, where some regions lag far behind others. Understanding and addressing these internal variations is crucial for Europe to improve its overall economic performance and close the gap with the United States.