Friday, August 21, 2009

European productivity

Europeans frolic while Americans toil -- and still make more stuff. Right.

Business Week correspondent Mark Scott says that, despite working fewer hours, European workers are more productive than their American counterparts:
Americans may take less vacation, but are they really more efficient than their European colleagues? Figures from the World Economic Forum certainly show the U.S. remains the world's most competitive country. Yet other data, including countries' GDP per hours worked, reveal Europe still gives America a run for its money. That means many parts of the Old World are at least as productive as the U.S., if not more, with the added bonus of up to eight weeks off a year.
Scott would have us believe that Europeans manage to produce more stuff than Americans even with having significantly more vacation time. If that sounds a bit far-fetched that's because it is, with such productivity figures really nothing more than statistical sleight of hand. The notion that Europeans are more productive than Americans has been around for a while, and was explained by William W. Lewis in his book The Power of Productivity.

Quite simply, more jobs exist within the U.S. economy than in Europe that add only marginal value, which skew productivity figures. Think, for example, of a grocery store. While American stores commonly have low paid employees who have jobs such as serving as baggers -- roles often filled by teenagers -- these are almost non-existent in Europe (I certainly have never encountered one) thanks to labor laws that raise the cost of hiring new employees. The result is that while economic output at the American grocery store is only slightly higher than a European one -- baggers don't bring a lot of value add to the equation -- the European store will almost certainly have higher productivity figures as measured by output divided by hours worked.

The notion that Europeans can take more vacation and yet produce more is akin to getting something for nothing. And remember, the first rule of economics is that there ain't no such thing as a free lunch.

Update: I emailed Mark Scott to voice my concerns about his article but received a reply stating that he is on vacation until August 25, so I am doubtful of receiving a response.

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