Europe faces ‘competitiveness crisis’ as US widens productivity gap

The US has widened its productivity lead over Europe, sparking fears in the EU that it faces a “competitiveness crisis” as policymakers call for greater public and private investment.

New data released on Friday showed eurozone productivity fell 1.2 per cent in the fourth quarter from a year earlier, while in the US it rose 2.6 per cent in the same period, separate data showed. Labour productivity growth in the US has been more than double that of the eurozone and UK in the past two decades.

“In the long term, productivity growth in the US is projected to be higher than in Europe,” said Bart van Ark, managing director at the UK-based Productivity Institute. “Europe is not showing the same dynamism. That is widening the growth gap between the US and the EU.”

Some economists argue that the US is growing faster than the eurozone in part because its population is younger, growing more rapidly and working longer hours. But a big part of the output gap is because people in the US also produce more for each hour that they work. 

EU policymakers view the trend as deeply worrying — and a reflection of a long-standing failure to match US levels of private or public sector investment. 

Output per hour worked, a standard measure of labour productivity, has grown more than 6 per cent in the US non-farm business sector since 2019, according to official data. That far outpaces the eurozone and UK, which have seen growth of around 1 per cent over the same period. 

The recent jump in US productivity comes after a massive fiscal stimulus centred on green industry, a frenzied period of rehiring and a surge in new business formation in homeworking hotspots.

By contrast, the eurozone has received less fiscal support from governments while suffering a much bigger rise in energy prices as a result of Russia’s full-scale invasion of…