2023-11-12 23:02:13
The insolent and astonishing growth of the United States in the third quarter reminds us of this. Between Europe and the United States, it is the story of a disconnect that has never ended since the mid-90s. One last point does not make a trend, we know that. But if we take a step back, to go back to just before the health crisis, American growth is now reaching an annual rate of 1.9%, while that of the euro zone remains less than 1%. This point of difference has been around since the mid-1990s. As a result, the economic weight of the euro zone continues to decrease.
The decisive impact of demography
Demography plays, at first glance, a decisive role in this dropout. More than half of the growth gap is attributable, a priori, to this element, which has a positive impact on both the labor supply and the dynamism of domestic outlets. But its impact is much deeper. The demographic gap is in fact even wider when we narrow the analysis to the working-age population. The labor pool is growing by 0.8% per year across the Atlantic while it virtually stagnates in Europe. An additional slowing factor therefore, further aggravated by the more advanced aging of the working population on this side of the Atlantic. In short, seen from this angle, the European demographic handicap would explain three quarters of the problem.
The multiple advantages of the American economy
In addition to demographics, the American economy has a multitude of well-identified advantages, justifying its ascendancy in terms of growth over old Europe:
• the strength of the dollar, which allows it to pursue much broader budgetary support policies to cushion crises;
• a greater degree of unification of its domestic market, leading to scale effects greater than those of Europe;
• technological leadership, the source of informational and financial income;
• the depth and liquidity of its asset markets;
• and its access to less expensive energy…
Demography certainly no longer participates with the same intensity in the gap today. On the other hand, the war increased the relative energy advantage of the United States, while the German industrial locomotive saw, on the contrary, the advantage it had patiently built up being shattered. The American budgetary impulse, due to its exceptional scale and its extension over time, also contributes greatly to the widening of the gap over the last two years. Added to this are the dissaving behaviors of American households which are strengthening the driver of consumption in the short term.
Generating significant productivity gains in services: the real strength of the USA
However, we may be surprised that these various elements ultimately only play a marginal role. In truth, the focus on demographics tends to undermine America’s structural advantage. Because the declining European demographics have not had the restrictive impact that one might suspect. The mobilization of the working age population has in fact increased considerably since the 2000s in the euro zone, as evidenced by the increase in activity and employment rates, in the wake of liberalization reforms and reduction of cost of low-skilled labor. Europe has therefore compensated for its demographic inertia by catching up with the United States in terms of activating its working-age population. As a result, since 1995, employment has increased at the same rate on both sides of the Atlantic. And since 2019, Eurozone employment growth has been even higher than that of the United States.
If we favor this decomposition of growth, it is the productivity per employed worker which would fully explain the growth differential between the two economic areas. More precisely, what sets the United States apart is its ability to generate productivity gains in services. What does this finding suggest? That Europe is still in an old logic of dumping its industrial jobs onto small, degraded service jobs with low added value. While the United States, once the temple of these jobs, has now entered a phase of automation/optimization of these services. They are not only producers but also better users of digital technologies.
A productivity gap which goes hand in hand with an appreciation of the dollar of more than 35% since 2008. The drop in volume is coupled with a drop in value, amplified by the exchange rate. This is called impoverishment… American tourists in Europe, with their boosted purchasing power, know this well, and it has been considerable since 2008.
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