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Productivity has grown faster in Western Europe than in America
- mantas 3y agohttps://archive.ph/9pRNW https://archive.ph/9pRNW
- moelf 3y agoI'm almost certain population size and sectors play a huge role but I don't see a way to control for it (it's basically characteristic of the country)
- 0xDEF 3y agoThese articles never mention how important Big Tech companies have been for the significant growth of the US economy since 2008.
- quitit 3y agoIt's a bigger factor than what many realise. Removing top tech performers from S&P drops its performance to less than half, and that figure itself is around half of the historical S&P average. Annualised 5 year performance of S&P was around 15% (12% is the long term average). Taking away FAANG reduces it to just 7%. Worth stating is that these companies are also a significant source of unwanted volatility. The performance of US tech companies are such a run away success that economists remove them as outliers to get a better picture of how things really are. We basically have two economies, they will certainly only further diverge.
- LeanderK 3y ago> We basically have two economies, they will certainly only further diverge. a very interesting take. Given that europe completely failed in developing FAANG-like companies, i wonder how the US economy with the FAANG-like top tech performers removed compares to it. Of course this removes a significant part of the US economy and is not fair, but it's still interesting.
- quitit 3y agoMy core criticism of the EU developing their tech industry are centered in two issues: 1. Allowing their innovations to be bought out by large US incumbents. Much of the latest and greatest IP started in Europe, and is now firmly held by US-controlled businesses who are using it to make bank. 2. Generally having policy which either directly or indirectly prevents large or competent industry from forming in the first place. I don't mean environmentalism or workers rights, but rather issues that the USA has well handled: such as access to capital, eliminating protectionist strategies which prevent mediocre or floundering companies from being out competed by startups, and what appears to be a total fear of trialing new approaches/smoothing out barriers to entry.
- logicchains 3y ago>Worth stating is that these companies are also a significant source of unwanted volatility. Unwanted for people holding S&P over a short timeframe, maybe, but volatility is absolutely necessary for a healthy economy. Volatility in the market represents uncertainty, and new business models and technologies bring uncertainty. A market with continuous low volatility is a market in which everything is very predictable, and hence no big innovations are happening (because it's always hard to predict how/whether big innovations will work out, so such things entail volatility).
- throw0101c 3y agoHigh concentrations of the stock market has been around since forever: > Jason Zweig once shared that AT&T made up 13% of the U.S. stock market in the early-1930s. General Motors was 8% of the market in 1928 and IBM had a 7% weighting in 1970 (it was close to that again by 1985). * https://awealthofcommonsense.com/2023/05/concentration-in-the-stock-market-2/ https://awealthofcommonsense.com/2023/05/concentration-in-th...
- quitit 3y ago> High concentrations of the stock market has been around since forever That's useful and interesting, but the importance of the topic today lays in rate of growth, rather than the % market cap against the greater stock market. Removing FAANG drops the rate of growth to roughly half. This indicates that tech companies are pulling up the average rate well above the historical average. The fact that many of them also possess very large market caps underlines the point that these businesses are unfathomably large in comparison to other business sectors. It's also worth noting that the historical averages includes the effects of AT&T, GM, IBM, et. al.
- endisneigh 3y agoWhat would be the point of removing BigTech companies? The USA has a service based economy, so of course big tech would contribute greatly.
- Sakos 3y agoIs it really unfair if such a small number of people are employed by big tech? https://www.bls.gov/emp/tables/employment-by-major-industry-sector.htm https://www.bls.gov/emp/tables/employment-by-major-industry-... How many people actually benefit from these companies? How much do statistics of tech workers vs everybody else differ?
- endisneigh 3y agoThe government has and will continue to receive tax revenue from both the companies and those who gain from the productivity in the USA. A weird take to remove the most productive industries.
- Sakos 3y agoIt's not a weird take. It can be valuable to see how a certain demographic differs from the rest and how big an outlier big tech might be in a number of ways. Do you even care about the data or are you just here to protect your weird US-based self-esteem? Why wouldn't you want to find out more? Also, how much tax revenue do these companies really pay? And what productivity benefit? It feels like now you're really reaching. What productivity benefit is there that isn't also achieved by everybody else on the planet with access to their services? Stop trying to make shit up.
- bee_rider 3y agoIt would be better to look at medians or something like that. Arbitrarily plucking out some fields to ignore seems silly.
- Sakos 3y agoIt's not arbitrary.
- deaddodo 3y agoYou could literally do this for any nation. "These charts never mention how important subsidized foreign manufacturing is for the Chinese economy" "These charts never mention how important banking and foreign money flow controls are for the economy of the UK" "These charts never mention how important the European Free Trade zone and auto manufacturing have been to the German economy" An economy is it's whole. Taking out it's top performing industries is handicapping it for your own biases/statistical deviations.
- Grimburger 3y ago"productivity" aka wages in an economic sense
- AnimalMuppet 3y agoI'm pretty sure that's not how productivity is defined. I can't read the article, so I can't tell whether your "productivity = wages" is a definition they use, but that would be a very odd definition. Productivity is usually defined as total output of the economy, not the fraction of it that got paid to workers. [Edit: Per a quoted snippet from another commenter, it looks like it's total output divided by hours worked. Still not wages, nor closely correlated.]
- schnitzelstoat 3y agoIt's not perfect, but it's a good proxy that you can calculate from macro figures without needing data from every single company etc. Profit per hour worked (which will be somewhat correlated) puts a hard ceiling on wages, so it is important. It's more to do with the type of industries a country has. The USA has many of the world's largest and most successful corporations and their HQs generate a lot of highly productive and well-paid jobs. Meanwhile Southern Europe, for example, depends heavily on tourism which creates less value and tends to have low paid jobs. The thing about how Europe has no Big Tech companies is almost a meme. But it has some truth to it.
- Grimburger 3y agoWhen C-suites say productivity they definitely mean wages, I know it's not the according-to-Hoyle definition in the dismal science.
- throw_pm23 3y agoIt has grown even faster in Eastern Europe (from a lower base of course). On the GDP change figure at PPP (second, at the right), Romania is off the chart. Also, US is clearly able to be more productive overall, while Europe able to create a higher quality of life for a higher fraction of its population. Which of these facts will be sustained in the next decades remains to be seen.
- pharmakom 3y agoI’m not sure about that. Middle income America has cheaper housing, food and durables with higher wages than middle income in Western Europe. The very bottom of America is (of course) much worse off
- throw_pm23 3y agoSure in terms of purchasing power of the middle class I suspect you are right. More holistically, in terms of access to good healthcare, education, safety (both physical and financial), culture, free time, quality of the built environment, livable cities, general health level, etc. it seems to me Europe is better off than US.
- 4RealFreedom 3y agoYou really piqued my interest when I hit sports in your comment. Granted, I do not watch any sports. How do 'sports' translate into being 'better off'? I'm genuinely curious. Edit: did you change your comment or did I just misread it originally? I swear 'sports' was in there.
- throw_pm23 3y agoYes, sorry, I meant it under "general health" as in people playing sports in their free time.
- bjornasm 3y agoThe poster talked about a higher quality of life for a bigger fraction of the population, not higher purchasing power for the middle class.
- 4RealFreedom 3y agoThis feels like using some mental gymnastics to prove a point. I'm not saying the conclusion is wrong just that it's a strange way to present the data and left me unconvinced of the conclusion - something the author caveated throughout the article.
- vanderZwan 3y agoThe economist is a magazine where every article is just the author's opinion. It's not like it's a science publication with peer review. I don't know why people take it seriously.
- crazygringo 3y agoNone of the news is peer reviewed. By your argument, nobody should take any news seriously? As far as news analysis goes, the Economist isn't perfect, but it's certainly better than most of the stuff out there.
- antisthenes 3y ago> None of the news is peer reviewed. By your argument, nobody should take any news seriously? News is mostly a description of factual events that occurred. What you're talking about is opinion pieces about the news, and yes, those should generally be not taken seriously (at least 90% of them). Especially the hot twitter takes, etc.
- lutoma 3y agoBecause not everything needs to be a peer-reviewed scientific publication, sometimes just reading people's opinion on stuff is enlightening too, especially if they have expertise in a field. It may not be 100% accurate all the time, but it can still give you food for thought.
- endisneigh 3y agoI always found these sort of observations to be meaningless. 1 million to 1.5 million is far less than 100 to 1000. What's also the point of comparing the entirety of America to Western Europe? Why not do it by state then? The author almost gets it with their comment: > As a result, commentators and think-tanks have set about comparing the economies of some of Europe’s richest countries to those of America’s poorest states In any case, all of the free stuff Europe (and any place, for that matter) gives their citizens will come to an end real soon once the population bomb explodes on the world.
- jstummbillig 3y ago> What's also the point of comparing the entirety of America to Western Europe? Why not do it by state then? The point is, that it's simpler. Is complicating worth it?
- endisneigh 3y agoI mean, it's cherry picking, but OK. Luckily, the chart in the article doesn't aggregate so loosely by "Western Europe" and breaks it down by country.
- rafaelmn 3y agoThen compare it to EU ... People ragging on US tend to forget that inequality between EU members is larger than US states and they are of comparable size. So much for the egalitarian utopia.
- nova22033 3y agoBut focus instead on productivity, by dividing these figures by a tally of hours worked, and the gap closes further. As a result of demography—western Europe has a larger share of elderly people than America does—and because of differences in holiday allowances, pensions and unemployment benefits, Europeans work less than Americans do. The real story
- mensetmanusman 3y agoI’m 100x more productive in regards to coding due to LLMs, and I’m certain that is not included.
- lionkor 3y agoTo me all this indicates is that your productivity is measured in amount of trivial non-novel problems solved per time, likely in a pretty isolated environment, and a common tech stack. This is not a common setup, if accurate
- mensetmanusman 3y agoI’m not a programmer at all, and now I can be for the small tasks that wouldn’t have been supported otherwise. This is happening to many :)
- reilly3000 3y agoAnecdotally I’ve found the people I’ve worked with from EU countries tend to be well-educated and highly effective. If US work culture is about quantity, theirs is quality. I think that is a sustainable posture that will continue to bear fruit.
- nine_zeros 3y ago> Anecdotally I’ve found the people I’ve worked with from EU countries tend to be well-educated and highly effective. If US work culture is about quantity, theirs is quality. I think that is a sustainable posture that will continue to bear fruit. As an American, I have found this to be true as well. It is more about the corporate culture in America - which basically lazily attempts to quantify engineering. This leads to an amazing amount of chaos in American companies. E.g. there is a new fad about counting # of commits as a measure of productivity in many American companies. Guess what is getting produced ever since engineers have discovered this.
- Fripplebubby 3y agoWhich American companies do this?
- spacecadet 3y agoMore than you want to know. As OP pointed out it seems to be a relatively new fad that has me deep sighing...
- LudwigNagasena 3y agoNote that “productivity” here refers to GDP PPP / hours worked. No doubt it is a good proxy for productivity but I wouldn’t go as far as to equivocate the two. There is just too much stuff in GDP, and especially GDP calculations, that doesn’t mesh with the idea of productivity that well.
- adverbly 3y agoNot sure that is a good metric. For one, anyone working fewer hours is going to do the high priority things in those hours, and have a higher productivity as a result.
- lasermike026 3y agoRead and calculate, read and calculate. Stop buying. Stop driving. Seek a healthy lifestyle, high quality food, and high quality health care. Work within your body's tolerance and live within your means. Be active in your community helping others, participate in your government, and vote correctly.
- refurb 3y agoProductivity measures, as GDP per hour worked, are highly skewed by things that we don’t think of as “productivity”. Go and look and the “most productive countries”. Who is #1? Ireland. Why? Because GDP is very high. Why? Because multinationals use Ireland as a tax haven. They move IP to that country, then “charge” Google offices in other countries for that IP. That’s then added to Irish GDP. Now what happens to that money. Does it get paid to Irish people? No, beyond the handful of people in the Google Ireland office, it goes back to Google USA when the profits are repatriated. It’s the same thing for other “highest productivity countries” - Luxembourg (finance), Norway (oil), Switzerland (finance). They all have very high profit activities that are outsized to the hours workers put in.
- s_dev 3y ago> Productivity measures, as GDP per hour worked, are highly skewed by things that we don’t think of as “productivity”. The real problem is using a single tool and expecting it to fit all uses. GDP as a metric is simply overused and like that law I'm sure some other HNer will help me out -- a measure ceases to be a good measure when it becomes a goal. Measuring the Irish economy is easy it's just GDP isn't really that useful when considering Ireland, there are plenty of other measures you can use to compare and contrast Ireland with other countries to guage how wealthy or productive it is. Always remember though that the GDP per capita of Alabama and Bavaria are approximately the same. Yet you would be insane to think Alambama is richer than Bavaria -- there are simply limits to GDP, like if you want to increase the GDP of your own country just start throwing rocks through windows. You're not adding value, just economic activity.
- deleted 3y ago[deleted]
- redtriumph 3y agoThis may not be news to everyone. The Economist have started sharing their data on Github [0]. I wonder if this is one-off publication of data or it is general trend to share their data publicly. A welcome move. [0] https://github.com/TheEconomist/the-economist-gdp-per-hour-estimates/ https://github.com/TheEconomist/the-economist-gdp-per-hour-e... [1] https://github.com/TheEconomist https://github.com/TheEconomist
- hcks 3y agoI can’t access the article but how do they account for the fact that high minimum wage and good social safety nets in Western Europe results in lower participation in the workforce from people with lower economic productivity?
- dukeyukey 3y ago> but how do they account for the fact that high minimum wage and good social safety nets in Western Europe results in lower participation in the workforce from people with lower economic productivity? Before you ask "why", ask "if". Lots of European countries, including the UK, Germany, France, and the Netherlands have a higher workforce particpation rate than the US. https://data.oecd.org/emp/labour-force-participation-rate.htm https://data.oecd.org/emp/labour-force-participation-rate.ht...
- huijzer 3y agoSo last month Germany was mentioned in multiple articles as being in a terrible production decline and now it’s suddenly the opposite? I guess the truth lies somewhere in the middle.
- Mandelmus 3y agoTo be honest, as a German I have no idea where this increase in productivity is supposed to have occurred. My experience and intuition is that Germany is suffering from a rise in lethargy and inefficiency ("German efficiency" is a meme that's utterly outdated and inapplicable, at least in my sector, IT). I'd be happy to learn about concrete and representative information that balances my perspective but I have yet to see it.
- coffeebeqn 3y agoAs an outsider I found Germany very bureaucratic. Felt like my home country in the 80s
- bildung 3y agoProduction is the gross output. Productivity is production divided by the whole population or the working population. You can easily have a situation were production shrinks but productivity is unchanged, e.g. because a cohort leaves the workforce and becomes pensioneers.
- weatherlight 3y agoThis article raises some interesting points but falls short in several key areas. One glaring issue is the methodological shortcomings. While the article acknowledges that metrics like Purchasing Power Parity (PPP) and productivity calculations are an "inexact science," it doesn't delve into the limitations or complexities of these metrics. This lack of depth could mislead readers into taking the numbers at face value. Aanother area where the article could improve is in its treatment of cultural context. It briefly mentions that Europeans value leisure time more than Americans but stops short of exploring how these cultural factors might influence economic performance or individual well-being. A more nuanced approach that includes these variables could offer a richer, more holistic view of productivity. The article also engages in selective comparison, opting to pit some of Europe's richest countries against America's poorest states. This could be seen as cherry-picking data to support a particular narrative, rather than providing a comprehensive and balanced overview. Additionally, the article suggests that increasing working hours could be a way to narrow the GDP gap but doesn't discuss the potential social or health consequences of such a move. It identifies problems and offers comparisons but stops short of suggesting any concrete steps for improvement or policy changes. The article treats "Western Europe" and "America" as monolithic entities, which can be misleading. Both regions have significant internal diversity, and a more granular approach could provide insights that broad comparisons miss. On the Voice and Audience for this particular article: The intended audience for this article appears to be policymakers, and business leaders, given its tone and focus on high-level economic indicators. This narrows the reach of the article and potentially excludes those who might benefit from understanding these complex issues but lack specialized knowledge. Moreover, the tone can come across as elitist, almost as if it's speaking to a "House of Lords" audience, which could alienate readers who don't fit that profile. The analysis could benefit from a more rigorous methodology, a deeper exploration of cultural factors, a more balanced approach to data selection, and a reconsideration of its intended audience. In the words of ,"The Dude", "Yeah, well, you know, that's just, like, your opinion, man."
- throitallaway 3y agoAmerican here. I'm burnt on just about everything and finding it hard to be productive. Bonkers inflation (with wages not keeping pace), companies not investing in their employees, brain drain from people job hopping, lay offs, out of control cost of living, likely never being able to afford a house, no attention paid to public health crises, etc. The "American dream" is dead and buried. If a decent percentage of the population feels like this, it's hard to envision growth for the country.
- coffeebeqn 3y agoYeah I pay over $2000 for 3-day daycare (total for two). This is in a mid-size metro in the Midwest. West coast would’ve been $2000 for one.
- trgn 3y agoI think this is the perfect example. Sure, americans make more money, but we spent _way_ more on the biggies (education, healthcare, childcare, ...). I have the unfortunate situation having to witness europeans in my family lead a much more relaxed life, with a much lower recurring baseline cost. It would also explain something a little paradoxical imho. Home cost, relative to income, can be incredibly high in Western Europe (10:1 ratios, similar to the coasts here are pretty normal there). How?!?! Yet, people carry it with no problem. Housing (owning) really the only biggie there. All their other disposable income is gravy.
- plandis 3y agoI’m in Seattle and pay $3000/mo and it was the only daycare that had an opening.
- hx8 3y agoLook, I'm all for attacking American exceptionalism, it's a delusion I've personally been trying to shake for my entire adult life. I just have issues with this particular study * The metric is PPP Per worked hour. I don't think PPP is a great measurement of productivity. There are many factors that impact PPP that have nothing to do with productivity. * In the US we work more hours. We defiantly work so many hours that we are past the diminishing returns of peak productivity hours. Here on HN we sometimes debate if our workers overall productivity would increase if we lowered the amount of working hours. * Growth is a weird factor in economies. It's easy to grow when you aren't at the top. Smaller economies can reach 8% growth by importing techniques and technology from more advanced economies. The most advanced economies usually grow at about 2% because they have to invent the new stuff to be more productive. * The US' population is much more diverse than European countries. Our geographic, cultural, and ethic diversity creates unique challenges and not all of our boats are rising equally. I think it's likely we are leaving a subsection of our population behind economically and this is showing up in the population numbers. Of course this is a serious problem, but it doesn't necessarily indicate the median US worker should be worried about a European taking their job.
- talideon 3y ago> The US' population is much more diverse than European countries. People in the US keep saying this, but it's never been clear what the basis of it is. I've rarely if ever gotten anyone to get beyond saying that Europe of full of old, well-established nation states, but that's basically assuming things are the same here as they were in the 1950s. Would you care to expand on this?
- chaostheory 3y agoIn short, immigration has been a big part of the US since it was born while Europe has only turned to immigration recently because retirees will outnumber working adults sooner if they didn’t rely on immigration. Sadly, I don’t feel a large portion of the European population realizes this given all of the backlash. Tbf most people in the US and Canada don’t realize that the age depopulation bomb is happening either or they would also be more open to immigration.
- bee_rider 3y agoThe countries above the US in their PPP GDPPP/hour worked chart are pretty small ones, more like the size of a US state than USA the country. A US state sized entity can get pretty good returns by focusing on a specialized niche: Massachusetts (larger population than Norway) for example can focus on a sort healthcare/education/biomed cluster and end up with a GDPPP somewhere around 20% higher than the country as a whole. Luxembourg could be compared to Boston or Seattle or something.
- nerdponx 3y agoIf Western Europe was less productive than its long-run average for a while, and America was more productive than its long-run average for a while, then couldn't this just be regression to the mean?
- weatherlight 3y agoSo I was doing a short code review of the R scripts provided by The Economist for their article on productivity comparisons between Western Europe and America. I found a few interesting quirks that could potentially skew the data or its interpretation. The code carries forward missing values for specific years from previous years. While this is a common practice, it could introduce bias if the missing data isn't random. Then there's the selective filtering of countries based on conditions like having a GDP over hours worked greater than 5000. This could introduce a selection bias that favors certain countries over others. something else i noticed is the use of population-weighted averages. While it's a standard practice, it gives more weight to countries with larger populations, which could skew the results. The code also adjusts GDP for various factors like working-age population and employment rate. These adjustments are useful for a nuanced understanding but introduce assumptions that could affect the results if not validated. The code calculates an index difference to the United States for each year and type of data, essentially setting the U.S. as a baseline for comparison. This could be problematic if the U.S. itself has outliers or skewed data for those years. Also, there's no normalization or standardization oof the data before making these comparisons, which could be an issue if the distributions of the variables being compared are different. some countries like Ireland are explicitly excluded from the analysis, and the rationale for this isn't provided, which could be a point of concern.
- weatherlight 3y agoSomething else to note. The code merges data from WDI and OECD. If these sources have different methodologies for collecting or reporting data, it could introduce inconsistencies.
- pcrh 3y agoIreland would be excluded because GDP estimations for Ireland vastly over-estimate wealth due to many corporations being resident in Ireland for tax purposes. Otherwise, I have long suspected that using the US/US dollar as a baseline results in some skewing of the data. For example, GDP per capita PPP comparisons would place Mississippi as wealthier than the UK (as mentioned in the OP). However human development indices paint a very different picture, and would place Mississippi on par with Eastern Europe [0]. [0] https://i.imgur.com/yPkHUNt.jpg https://i.imgur.com/yPkHUNt.jpg Source: https://vividmaps.com/human-development-index-us-vs-europe/ https://vividmaps.com/human-development-index-us-vs-europe/