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Productivity gap between U.S., Europe widens

The gap in productivity growth between the United States and Europe widened sharply as U.S. businesses were more aggressive in laying off workers.
/ Source: The Associated Press

The gap in productivity growth between the United States and Europe widened sharply as U.S. businesses were more aggressive in laying off workers and pushing their remaining employees to be more efficient, according to a business research group. Growth in productivity is the key factor in rising living standards.

In a new report, the Conference Board estimated that productivity — the amount of output per hour of work — rose in the United States by 2.5 percent in 2009 while productivity was falling by 1 percent on average in the euro area, the 16 European nations that use the euro currency.

The Conference Board said in a report to be released Wednesday that the gap would narrow in the current year but the United States would still outperform much of the euro area. Conference Board economists forecast that productivity would strengthen to 3 percent growth in the United States in 2010 and return to positive growth of 2 percent in the euro area.

"These are unusually large differences in productivity growth between the United States and Europe," said Bart van Ark, chief economist for the Conference Board, a New York-based research group. "U.S. employers have reacted much more aggressively to the recession than their European counterparts in terms of cutting jobs and hours."

The United States normally has enjoyed stronger productivity in recent years than Europe, an increase many economists attribute to fewer U.S. restrictions prohibiting layoffs than in Europe.

Over the decade from 1995 to 2005, annual productivity gains averaged 1 percentage point higher in the United States than the 16-nation euro zone. Productivity rose on average 2.4 percent in the United States during this decade and 1.4 percent in Europe.

The recession that began in December 2007 in the United States before spreading around the world has been the sharpest downturn since the 1930s, resulting in a loss of 7.2 million jobs in the United States.

U.S. companies have been experiencing a boom in productivity as the amount of output per hour of work rises as the workers remaining after successive waves of layoffs turn out more per hour. Productivity rose at an annual rate of 8.1 percent in the July-September quarter, the biggest jump since 2003, the Labor Department reported last month.

The Conference Board's projection of a 2.5 percent increase for all of 2009 is in line with the expectations of other private forecasters and would exceed the gains averaging less than 2 percent annually for the four years before 2009.

Normally, a big jump in productivity would translate into higher wages for workers but that has not occurred during the current deep downturn that has seen labor costs falling sharply in the United States as companies struggling to survive the recession have used the increases in productivity and reduced work forces to bolster their bottom lines and shore up profits.

The projected 2.5 percent rise in productivity for all of 2009 in the United States, while better than the performance in Europe, will be outpaced by many emerging economies, the Conference Board said. It projected that productivity would surge by 8.2 percent in China in 2009 followed by a sizable 7.7 percent gain in 2010.

The report found that productivity growth in the seven largest emerging market economies — Brazil, China, India, Indonesia, Mexico, Russia and Turkey — averaged an estimated 3.6 percent in 2009, down from a 5.3 percent growth rate in 2008.

That average, however, masked wide differences between developing countries.

Productivity actually fell by an estimated 3.8 percent in Russia in 2009 and was down 3.2 percent in Turkey while rising by estimated 3.9 percent in India and 8.2 percent in China.

The Conference Board produces an annual report on global productivity.