Now that the triumphalist rhetoric has died down a bit, it’s interesting to look at what is still special about the US economy. The answer is not, as might be imagined, productivity. In terms of both output per hour and total factor productivity, this comparative study of US and European productivity shows that the US is near the top of the world league table, but is outperformed by several European countries – in fact, it’s almost even with Italy on both counts.
The US is above average in terms of participation rates – the proportion of the adult population that’s in the labour force – and a little bit better-than-average in terms of unemployment. Again though, there are lots of European countries that do better on these scores.
The really outstanding feature of the US economy is the incredibly long average working hours. Annual working hours in the US are above 2000 per person, whereas the European average is around 1600. It is this fact that accounts for the big gap in income per person between the US and the rest of the world.
From an economic viewpoint, there’s nothing much to be said about the optimal choice between income and leisure.. If Americans just like working more than Europeans, then both economies are doing a good job. On the other hand, if labor market institutions force Americans to work more than they want to, or Europeans to work less, there’s a welfare loss.
One point in favour of the Europeans is that working hours have generally declined with rising incomes. So the converse trend in the US in the last twenty years suggests either unusual preferences or malfunctioning institutions.