Fact of the Week: Labor Productivity in the U.S. is Higher than in the EU, Largely Due to ICT Investments

Labor productivity is 16 percent higher in the U.S. than in the EU-15, largely because the U.S. invests 35 percent more in ICT as a share of GDP.

Source: Robert D. Atkinson, “How ICT Can Restore Lagging European Productivity Growth,” Information Technology & Innovation Foundation, October 24, 2018.

Commentary: In the decades following World War II, labor productivity grew significantly faster in Europe than in the United States, averaging 3.1 percent and 2.1 percent, respectively, between 1950 and 1995. But the trend reversed in the years that followed. Between 1995 and 2007, the founding nations of the European Union, the EU-15, saw their productivity growth fall to just 1.4 percent while U.S. productivity growth rose to 2.6 percent. Today, U.S. workers are 16 percent more productive than EU-15 workers.

A new report by ITIF finds that this effect is largely attributable to Europe’s failure to invest in information and communications technologies (ICT), which drives labor productivity. In fact, from 2013 to 2015, nearly 30 percent of U.S. productivity growth came from ICT capital, a much greater share than in European nations, where the figure ranges from 7 to 23 percent. And the picture is likely to worsen for Europe in coming years, as ICT investment in the EU-15 lagged the U.S. rate in 2016 by 35 percent.