The study, "Performance 2000: Productivity, Employment and Income in the World's Economies," covers industrial economies and includes data through the end of 2000. The data are part of a vast economic database covering 70 countries maintained by The Groningen Growth and Development Centre at the University of Groningen in the Netherlands. The database includes timely economic data for all OECD countries as well as nations in Asia, South America and Eastern Europe.

Fueled by strong growth in information and communications technologies, U.S. productivity surged 3.8 percent last year. In Europe, productivity grew 1.4 percent, while Japan showed a 2.3 percent gain.

The climb in U.S. productivity, which began around 1995, has continued into the beginning of the 21st century. European productivity growth, which had been almost three times that of the United States in the first half of the decade, fell to less than half of it in the second half.

"Driven by information and communication technologies, the U.S. recorded dramatic productivity gains in the second half of the 1990s, particularly when compared to other industrialized nations," says Dr. Robert H. McGuckin, Director of Economic Research at The Conference Board, and co-author of the report with Dr. Bart van Ark, Director of the Board's International Economic Research. "With relatively high proportions of its population employed, sustaining these 'new economy' productivity gains is the key to continued U.S. leadership."

Although its productivity lags, European employment grew at around 2 percent during 2000. Compared with the earlier part of the 1990s, Europe has posted substantial employment gains. Over the last five years, growth in the total number of hours worked in the European Union averaged 1.3% a year, although it ranged from Ireland's robust 5.5% to 0.3% in Austria.

"Europe's employment growth is a remarkable achievement," says Bart van Ark, Director of International Economic Research at The Conference Board and a professor in economics at the University of Groningen in the Netherlands. Europe's increase in hours worked could spark a much-needed turnaround in the ratio of hours worked to population, which would allow Europe to translate productivity increases into higher levels of income. While European productivity is 82 percent of U.S. productivity, it has only 69 percent of U.S. per capita income. Even among European countries whose productivity levels are about the same as the United States (in Belgium, the Netherlands and France), their lower labor participation rates signal that these countries could more fully translate their productivity gains into per capita income.

But while the improvement in labor participation rates represents significant success, the slowdown in productivity growth suggests that Europe may be on a low-productivity path. "Since the mid-1990s productivity growth decelerated at 1.2 percent and Europe did not generate as much output growth as the U.S. Europe needs to avoid a low productivity path by exploiting the benefits of the new economy more effectively, in combination with continued reforms in labor and product markets," says Van Ark.

The Conference Board study finds that the tradeoffs between employment growth and productivity growth are being made throughout Europe. During the last half of the 1990s, Spain and the Netherlands were among the countries showing the fastest growth in labor input but the slowest productivity growth. But while Austria and Germany registered strong gains in productivity, employment growth was sluggish.

This disparity between employment and productivity growth is primarily a European phenomenon.

Although Japan maintained its productivity growth rate at a relatively high level throughout the decade of the 1990s -- despite several recessions -- it did so at the cost of employment growth. Total labor hours declined in both the first and second half of the last decade. The only other countries for which this was true were the Czech Republic and Switzerland.

Says Dr. McGuckin: "Recovery of employment growth seems essential to recovery of the Japanese economy. Japan was able to maintain modest productivity growth rates in the 1990s, but only with lower employment. Japanese progress in raising growth rates requires it to recover its growth in hours worked. But it cannot neglect structural reforms and improved productivity, particularly outside manufacturing. Despite declining employment in the 1990s, hours worked per employee and labor participation rates are relatively high so that productivity acceleration is crucial for Japanese growth to revive."

Source: "Performance 2000: Productivity, Employment and Income in the World's Economies"
Report 1287, The Conference Board

SOURCE The Conference Board
Web Site: http://www.conference-board.org



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