Real productivity of European countries

[Maciamo]

The value of all final goods and services produced within a country in a year is its GDP. The GDP per capita indicates the average share of the economy per person, if every single individual (from babies to the elderly) was working. Naturally this never happens, and salaries are never equal, although some countries have narrower gaps than others (see Gini coefficient). A more accurate "average" of the income in a country can be obtained by dividing the GDP per capita by the employment rate (see Employment vs unemployment rates in the EU).

For example, in 2005, Denmark had a GDP per capita (PPP) of US$ 34,740. Divided by 75.9% of the people in employment, each worker produces an average of US$ 46,381. If we now take Belgium, which has a much lower employment rate, we obtain : 31,244 / 61.1 x 100 = US$ 51,135. This means that the productivity per worker is higher in Belgium than in Denmark, in spite of Denmark's higher GDP per capita.


If we further divide by the average number of hours worked in the country, we get the productivity per worker per hour. Another way to calculate it is to take the GDP (PPP) per capita per hour and divide it by the employment rate, which should give exactly the same result, if the stats used are the same.

Here are the numbers I obtained (US$ produced per hour per worker ):

Luxembourg : 57.5
France : 56.6
Belgium : 55.9
Ireland : 51.8
Italy : 50.3
Austria : 46.4
Germany : 45.0
Netherlands : 44.5
Sweden : 42.6
Finland : 42.6
UK : 42.0
Denmark : 40.4
Malta : 35.7
Spain : 34.2
Estonia : 34.0
Greece : 33.1
Slovenia : 30.7
Slovakia : 27.8
Cyprus : 27.3
Portugal : 25.6
Latvia : 23.9
Hungary : 23.1
Poland : 22.4
Lithuania : 21.5
Czech Republic : 18.6
Bulgaria : 17.8
Romania : 10.0
------------------
Iceland : 29.4
Norway : 53.0
Switzerland : 35.6
Turkey : 28.5
Japan : 37.3
USA : 49.6


This means that French workers are, for example, 50% more productive than their British counterparts. The similarity of the results for culturally similar countries (e.g. Nordic countries, Spain & Portugal, France, Belgium and Luxembourg) demonstrate that they are probably a trustworthy indicator of the productivity across cultures.

So why do France and Belgium have similar GDP per capita to less productive countries like the UK, Germany or the Netherlands ? This can be explained by the very high percentage of fairly recent (last 3 generations) immigrants from developing countries, who are usually poorly educated an have much higher unemployment rates.

For instance, some immigrant districts of Brussels have official unemployment rates of 50% (but we know that the unofficial rate is always much higher, once we remove students, housewives, incapacitated people, etc.). So these people hardly contribute at all to the official economy represented by the GDP. Dividing the GDP per capita per hour by the employment rate effectively wipes out all the unemployed immigrants from the statistics, which make up maybe half of the 38.9% of Belgian residents not officially working.

In comparison, foreign residents in the UK tend to be much better educated, as the UK has attracts more intellectual job-seekers (in IT, finance, and even medicine), as well as more skilled workers (e.g. from Eastern Europe). It is not a new phenomenon; many Indian immigrants in the 1950's were medical doctors or lawyers. The only close equivalent to France and Belgium's Maghreban and Black African immigrants in the UK are the Pakistani immigrants who arrived in the 70's.

Both France and Belgium count about 10% of foreigners on their soil, but this does not include a significant percentage of naturalised immigrants, especially in France where half of the Muslims have already been naturalised. People of families having immigrated to France after WWII could possibly top 20% of the total population, with maybe 2/3 of them belonging to the poorly educated, badly paid or unemployed.

I do not believe that governments have (or at least publicly share) statistics about the average salary by ethnicity or nationality, but it wouldn't be completely absurd to believe that the gross income of French and Belgian nationals of European descent (so without naturalised immigrants) is considerably higher than that of other non-immigrant Europeans. So if we were to "hide/remove" all foreigners and people of non-European descent in Europe, the GDP per capita in France would probably be in the top 3, as opposed to 15th now.


See also :

- Employment vs unemployment rates in the EU

- Why GDP per capita does not reflect a population's wealth

- Gini coefficient

[Maciamo]

Here is what diferences in real productivity look like on a map of Europe.

[jkhofling]

I have a question regarding the high productivity among the European countries. I would like to know why Belgium and Luxembourg are particularly high. Belgium has ratings of 110 in GDP per hour worked, Luxembourg 121 per hour worked and Norway 122 per hour worked. These are statistics according to the OECD Productivity Database Sept. 2006. This high output per worker must be attributed to differences in institutions and government policies - social infrastructure. Could anyone shed light on this?
Kind regards,
Jamie

[Maciamo]

Here is the labour productivity of the 27 EU countries from Eurostat's Statistical Yearbook.

It confirms that Luxembourg, Belgium and France are among the most productive regions of Europe. At a smaller scale, here is the top 10 of productivity based on hours worked :

1) Groningen, Netherlands => 52.6 euro per hour
2) Luxembourg 49.6 euro per hour
3) Southern & Eastern Ireland => 48.1 euro per hour
4) Ile-de-France (Greater Paris), France => 48.0 euro per hour
5) Hamburg, Germany => 45.4 euro per hour
6) Brussels, Belgium => 44.5 euro per hour
7) Stockholm, Sweden => 42.3 euro per hour
8) Oberbayern (Upper Bavaria), Germany => 42.1 euro per hour
9) Utrecht, Netherlands => 41.6 euro per hour
10) Darmstadt, Germany => 41.5 euro per hour

According to Map 5.5, Amsterdam, Antwerp, Vienna and the whole of Denmark also have a productivity/hour above 40 euro per hour.


As for the productivity per person employed, 4 regions stand out with over 80 000 euro per person employed :

- Southern and Eastern Ireland
- Luxembourg
- Île-de-France (Greater Paris)
- Brussels, Belgium

Groningen and Hamburg skip away from the top because more people were employed (though working less) for the same GDP generated.

What is certain from these stats is that Ireland, and especially Dublin, has managed to make its way to the top of Europe's money spinners. Ireland now has the second highest GDP per capita in the EU after Luxembourg. Although Inner London, Paris, Brussels and Luxembourg all have higher GDP per capita than Dublin, the latter can now pride itself on its amazing productivity.

At a national level, Belgian workers are at the top of the list, with a productivity 28.5% higher than the European average.

[otelo]

macimo, there is a very simple explanation for the difference on productivity between france , belgium and other countries.

The answer is discrimination, in france, the people who have the productive jobs, are mainly from the "grandes ecoles" and these people don't let outsiders get into the job market. Thus they have to work much more to compensate for the low employement rate.

Germany, uk, sweden, norway have a lot of foreigners residents and they don't have this productivity problem, because they try to provide jobs for everyone, and the job productivity is share between the workers. The situation is even better in the usa where the job market is less and less based in discrimination and really offers opportunities for everyone, this makes usa a wealthier nation.

So you see that if we base on my interpretation, the high productivity is a bad sign in an economy. The "weak economies" that don't provide opportunities for everyone have high productivities and the "strong economies" that provide jobs for everyone have a lower productivity.

If france stops discrimination, then there will be jobs for everyone, there will be a higher working rate, and the productivity will decrease (to become reasonable), and the country will be whealthier.

[Maciamo]

Quote:

Originally Posted by otelo macimo, there is a very simple explanation for the difference on productivity between france , belgium and other countries. The answer is discrimination, in france, the people who have the productive jobs, are mainly from the "grandes ecoles" and these people don't let outsiders get into the job market. Thus they have to work much more to compensate for the low employement rate.

It is true that graduates from the "grandes ecoles" take most of the good jobs in public companies, public administration and politcs. But they only account for a tiny percentage of the working population (probably less than 0.1%). I don't think that we can really say that they are the ones doing all the work in France.

Furthermore, this system does not exist in Belgium, and yet Belgium has a similar productivity. The only thing the two countries have in common is low employment and a lot of African (including Maghreban) immigrants.

Quote:

So you see that if we base on my interpretation, the high productivity is a bad sign in an economy. The "weak economies" that don't provide opportunities for everyone have high productivities and the "strong economies" that provide jobs for everyone have a lower productivity.

So how do you explain that Ireland is the 4th most productive country ? It has a very strong economy and provides so many jobs to foreigners that it is in constant need of qualified immigrants. That's just the opposite of France, yet it has a high productivity too.

Countries with very low productivity are all poorer and underdeveloped. On a worldwide scale, the least productive countries are all in Africa. Within the EU, Romania and Bulgaria, the 2 poorest member states, are also the least productive. So I don't think that high productivity means "weak economy".

[solowdk]

Im aware this is a very old thread :)

The marginal product to labour is decreasing by the amount of labour - high employment will generally decrease GDP (PPP) per capita per hour.

Lets assume (not totally unrealistic) that high skilled workers are employed before low skilled workers, this means that countries with low unemployment (everything else being equal) will have a lower amount of human capital per worker, then a country with high unemployment.

Also not that france has a short work week compared to other countries (dont know about belgium), this could also be a factor to consider (decreasing marginal product per extra work hour).

Also, taxing could be a factor, with progressive taxing, you would expect high skilled workers to work relatively less, compared to countries with flat or regressive tax - thereby decreasing GDP (PPP) per capita per hour (scandinavia being the extreme case of progressive taxing).

Labour skill (human capital) can explain some of the differences among the countries.

Ireland i cannot explain.
A wild guess: low corporation taxes (12,5%) have attracted large corporations -> larger income variance and higher income in general.