ECB Economic Bulletin: Cyclical and Structural Features Behind Eurozone-US Productivity Gap

23 September 2024

By Isabel Teles – FRANKFURT (Econostream) – The historical difference in productivity growth between the euro area and the United States can be attributed to both cyclical and structural components, according to a section of the Economic Bulletin pre-released Monday by the European Central Bank.

‘The euro area’s significantly lower productivity growth over the last four years is partly explained by the more pronounced cyclical nature of productivity growth in this region... However, over the two decades preceding the pandemic, labour productivity in the United States increased around twice as fast as in the euro area. This points to the role of structural factors’, the authors of the bulletin said.

Some of the key structural factors that account for the higher productivity in the US are the lower innovation capacity of euro area firms and the fact that they are smaller in average size compared to the American ones, the authors said.

Differences in productivity in the information and communication technology sector also help explain the gap in productivity growth between the two economies from a longer-term perspective, the authors observed.

‘Labour productivity growth in the euro area remains significantly below its pre-pandemic growth levels, whereas it is broadly in line with its pre-pandemic trend in the United States', the authors said.

‘These developments, while broad-based across sectors, are particularly visible in manufacturing and private services', they observed.

Labour productivity per hour worked increased by 0.9% in the euro area between 4Q19 and 2Q24, versus 6.7% in the US, according to the bulletin.

‘Higher procyclicality of productivity in the euro area partly explains the widening gap in productivity growth between the two regions since 2019’, the authors said.