The per capita GDP for the combined 27 countries of the European Union (EU-27) is about 72% of the US level. On the other side, the average worker in EU countries puts in far fewer hours on the job than do American workers. For example, OECD data says that the average US worker put in 1,811 total hours in 2022, while due to a combination of more holidays and more part-time workers, the average for a French worker was 1,511 hours a German worker was just 1,341 hours. To put it another way, the average French worker works 7 1/2 fewer 40-hour weeks than an average American worker–almost two full months less. The average German worker works 11 3/4 fewer 40-hour weeks in a year than the average American worker–almost three full months less.
Thus, an obvious question is whether the per capita GDP for EU countries lags behind because EU workers are less productive per hour worked, or because they just work so many fewer hours. Zsolt Darvas offers an overview in “The European Union’s remarkable growth performance relative to the United States” (Brueghel blog, October 26, 2023).
Before doing the comparisons on a per-hour basis, we need to clear up a different issue: comparing the US and the EU economies requires converting between US dollars and the euro plus a few other remaining European currencies. Exchange rates can move around a lot in a few years, but it would be peculiar to claim that, say, because, the US dollar appreciated by 1/3 compared to the euro, the US economy was also now 1/3 bigger compared to the euro. As Darvas puts it:
In 2000, €1 was worth $0.92. By 2008, the euro’s exchange rate strengthened considerably, and €1 was worth $1.47. The EU’s GDP is mostly generated in euros, and thus it was worth many more dollars in 2008 than in 2000 because of the currency appreciation. But this was just a temporary rise in the value of the euro and not a reflection of skyrocketing economic growth in the EU. After 2008, the opposite happened. By 2022, €1 was worth $1.05, so compared to 2008, the euro’s significant depreciation relative to the dollar reduced the dollar value of EU GDP.
To avoid the complications of fluctuating exchange rates, Darvas instead uses “purchasing power parity” exchange rates, which are calculated by the International Comparison Project at the World Bank to measure the actual buying power of a currency in terms of purchased goods and services. For our purposes, the key point is that the PPP exchange rate doesn’t bounce around like the market exchange rate; for present purposes, it is similar to comparing the US and EU economies as if the market exchange rate had stated at the 2000 and 2022 levels, without the big bounce in the middle.
So using the PPP exchange rate, here’s per capita GDP from , with the US level expressed as 100. On the left-hand panel, the red line show’s China’s rise from 2% of US per capita GDP in 1980 to about 28% at present. The EU-27 line rises from 67% of the US level in 1995 to 72% at present. The breakdown on the right-hand side shows that this increase is mostly due to the countries of the “east EU” region, which is catch-up growth from Bulgaria, Czechia, Croatia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia.
Now let’s do the comparison not in terms of GDP per person, but instead in terms of GDP per hours worked, and also GDP per worker. What’s interesting here is that for the EU as a whole, GDP per hour worked has risen from about 72% of US levels back in the early 2000s to about 82% of US levels (blue dashed line). For Germany, with its very low level of average hours worked, GDP per hour worked was roughly equal to the US level back in the mid-1990s, then dropped off, and has now caught up again.
To put it another way, for the EU as a whole, the lower per capita GDP–28% below the US level–is roughly two-thirds due to the fact that GDP per hour worked is below US levels, and one-third due to fewer hours worked. But for Germany (and for some other western and northern EU economies), the lower per capita GDP compared to the US level is entirely due to fewer hours worked.
Of course, comparisons like these are grist for conversation. These kinds of comparisons do suggest that it is possible to combine fewer annual hours worked with rising output-per-hour. For my American readers, would you personally be willing to take an annual income cut of 10%, in exchange for an extra month of vacation each year? Does your answer change if everyone else also takes an income cut of 10% in exchange for an additional month of vacation? If group of major American employers offered that combination of similar hourly pay but arranged the firm on the expectation of substantially lower hours worked, would the company attract at least a sampling of top talent? What if the employers offered this option only to employees who had worked the longer hours and remained with the firm for, say, five or ten years?
