Dear pasof-ga,
You requested information about the main differences among productive
organizations in the U.S and in the E.U., and about how such
differences affect their international competitiveness.
Anecdotal evidence would suggest that Europeans simply work less –
they work less hours per week, and they work less days annually,
taking far more vacation than their American counterparts. For
example, the International Labor Organization provides the following
key indicators –
http://www.ilo.org/public/english/employment/strat/kilm/table.htm
Average number of hours worked per employee in calendar year 2000:
Finland – 1690.9
Germany – 1480.1
Norway – 1375.7
USA – 1978.7
EIROnline provides additional data, including a graph that shows
average weekly hours worked by country. The graph can be found at –
http://www.eiro.eurofound.ie/2000/12/feature/tn0012299f.html
But EU organizations are less productive than their US counterparts
due to far more than just number of hours worked. For example, other
factors referenced by the EIROnline report include –
+ Lower women’s’ wages as a percentage of men’s wages (demotivating
factor)
+ Higher union membership – averages 50.1% across the EU
A search on Proquest yielded several articles that discuss related
issues.
Woodall (Woodall, 2000) argues that the American lead in most
everything that has to do with technology and IT provides the US with
a productivity advantage. Since 1995, the US economy has spurted
ahead with GDP growth averaging 4.2% annually. This compares to only
a 1.8% annual average GDP growth rate in Germany, for example (and
Germany is by far one of the more rapidly developing EU economies!)
However, this so-called productivity gap could be closed if the EU was
to simply imitate and adopt American technology and
business-to-business eCommerce practices. Nevertheless, to really
close the productivity gap Woodall claims the EU must also shake up
labor and product markets. For example, European venture capital
markets are far less developed than in the US, making it harder to
start up new companies. And labor markets in the EU are entangled in
red tape, further complicating matters.
In fact, a July 2002 Europemedia report (Anonymous, 2002) found that
the productivity gap is not closing, even though information and
communication technologies are developing on relatively parallel paths
in the US and the EU. Even where employment gains were made over the
past several years, productivity did not increase. Europemedia’s
report points to poor performance among more staid industries
(non-technology) as reinforcing the productivity gap. As a result,
Europe may be entering “a low-productivity growth path, which in turn
would make it difficult to raise output and living standards in the
long run.”
Stevenson (Stevenson, 2001), writing in the New York Times, places
“blame” for the US’ success in “the resurgence of the nation’s ability
to produce more for less” (really, the essence of productivity from a
mathematical standpoint). Part of this resurgence has been due to the
US’ Central Bank’s interest rate policy – while the European Central
Bank worries about fighting inflation even in the face of declining
economies across the continent, Greenspan in the US has been quick to
cut interest rates in an effort to invigorate the local economy.
Because of the growth not just in productivity – but also in the rate
of growth of productivity – Americans have been able to earn more
without generating inflation, improving their standard of living at
the same time that the economy continues to improve as a whole. This
has a reinforcing circular effect, as the more effort one puts forth,
the more the reward grows and so forth – in a work environment, this
naturally leads to an increase in productivity. In the EU, the case
has been mostly the opposite.
Why else do Americans work harder? Economists Bell and Freeman
(Koretz, 2001) claim that this is due to greater pay disparity in the
US. Traditionally, American’s propensity to work harder than their
European counterparts has been largely written off as a cultural
difference – “Europeans…regard Americans as workaholics (and) simply
prefer leisure to labor.” But Bell and Freeman compared American and
European attitudes towards work and productivity in sectors where pay
disparity was relatively similar and found that the variance in
employees’ efforts in such sectors was not significantly different.
In other words, it is the greater disparity in wages in the US that
incentivized American workers to put forth more effort and increase
productivity.
The US also has some demographic advantages, as Turner points out
(Turner, 2001). Mainly, low population density (compared to Europe)
“makes possible looser planning rules, lower land prices and more
expansive physical development, and that in turn has a pervasive
effect on attainable productivity.” And, the US provides one large
single market negates the need to compete in foreign markets against
local producers and manufacturers as a prerequisite for economic
success.
R&D Magazine provides some telling numbers on the differences in
productivity between the US and Europe (Staff, 2002). In 2001, a year
that was quite weak in global terms, US labor productivity still
managed to rise 1.8% - compared to only a 0.6% gain in Europe. It was
$4.67 higher per hour than in the EU.
To summarize, then, there are many factors that contribute to
differences in productivity among organizations in the US and Europe –
+ A cultural attitude that leads to a preference of leisure time over
earnings
+ The fact that Europeans work less by every conceivable measure
+ A disparity in wages among women and minorities when compared to
men’s’ wages
+ Higher union membership
+ Less innovation (e.g. less startups, more constrained capital
markets)
+ Red tape and bureaucracy in labor markets
+ Less investment in technology and IT (Information Technology)
+ Poor performance among traditional industries
+ European Central Bank policies
+ Greater pay disparity in the US
+ Demographic advantages – low population density and the advantage of
a large, single geographic market
Of course, lower productivity impacts competitiveness – to produce the
same given product one must exert more effort at an increased expense.
As a result, one cannot compete on price nor earn the same return on
investment (ROI).
I hope this response adequately addresses your request.
Thanks,
ragingacademic
References
Anonymous. (2002, July 1). Europe Losing the ICT Race. Europmedia, 1.
Koretz, G. (2001, June 11). Why Americans Work So Hard. BusinessWeek,
2001, 34.
Staff. (2002, March). US Productivity in 2001 sustained by
information, communication technologies. R&D Magazine, 10.
Stevenson, R. W. (2001, Oct 7). The Outlook for Recovery: Three
Factors to Watch. The New York Times, pp. 3.4.
Turner, A. (2001, Mar 26). Economics: Debate: Europe holds the key to
success. The Guardian, pp. 1.25.
Woodall, P. (2000, Sep 23). Survey: The New Economy: Catch Up if You
Can. The Economist, 356, S32-S34.
Additional Links:
International Labor Organization
http://www.ilo.org/public/english/
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