Krugman Analysis Shows European Output per Hour Growth Does Not Signal Relative Decline Versus US

Krugman posted an updated argument that standard output-per-hour comparisons misrepresent competitiveness trends. The post incorporates revised GDP and hours-worked series through 2023 and directly addresses responses from Noah Smith and Luis Garicano. It maintains that Europe’s slower measured productivity growth coincides with stable GDP-per-capita ratios once demographic and participation effects are isolated.

OECD and Conference Board data confirm the pattern. Between 2010 and 2023, US output per hour rose 1.8 percent annually while euro-area output per hour rose 0.9 percent; yet real GDP per working-age adult in northern Europe remained within 2 percentage points of its 2010 gap to the United States. Draghi’s September 2024 report acknowledges the same series but interprets the productivity differential as evidence of eroding competitiveness.

The distinction carries operational weight for policy. European fiscal rules and ECB projections that embed headline productivity targets will understate sustainable growth if hours and participation are omitted. US-EU trade and investment models calibrated on raw productivity will overstate European catch-up requirements. Updated Eurostat hours-worked releases scheduled for 2025 will test whether the gap remains stable under revised national accounts.

Krugman’s framing aligns with earlier findings in the 2019 ECB Occasional Paper on labor input measurement and the 2022 OECD Compendium of Productivity Indicators, both of which flag participation-adjusted metrics as necessary for cross-Atlantic comparisons.