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“Why has Europe lagged so far behind the United States in productivity?”

That’s the question a new study by Proudfoot Consulting analyzes. A WSJ article (overlooked during the Labor Day weekend) looks at the central issue un this report, and seems to agree with its conclusions.

So: Why does European productivity lag so far behind the United States?

The answer may surprise you: Lousy management:

“Maybe low productivity in Europe isn’t a result of short working hours or inadequate technology after all — but instead a product of bad management.

“Managing for mediocrity,” a study published Monday by Proudfoot Consulting, observed workers in nine countries for more than 10,000 hours and found that bosses are behind low productivity, a notion that debunks the conventional wisdom. “The blame can be placed squarely at the feet of management, which is accused of insufficient management planning and control and of providing inadequate supervision,” says a statement accompanying the study.

That rings a note of truth to Andreas Kiffe, who works at one of Germany’s largest financial institutions in Frankfurt. Mr. Kiffe said that he might in fact be more productive if his supervisor were more closely peering over his shoulder. “Right now my boss is on vacation, and it’s sort of quiet at the moment,” he says with a smile. Understandably, the banker preferred that his employer go unnamed.

And that attitude comes from Germany, which among the countries included in the study had the least “lost” working days-per worker each year — just 74 in total — suggesting that there might be something to be said for German efficiency. A lost day is defined as a full working day during which the worker didn’t accomplish anything.”

Post-war West Germany had the most hours worked per capita of any the countries studied; Integration with the formerly communist East Germany has (obviosuly) not been a boon for worker productivity, as this graphic (one of the many from the 30 page report) shows:

Click for larger graphic
Euro_productivity
Source: Proudfoot Consulting

While the European Central Bank blames this “productivity gap” on a European lag in technological deployment, the study considered myriad other factors beyond simple efficiencies and technology: It especially looked at the impact of institutionalized cultural differences: The 35 hour work week, extended summer vacations, and something termed “lost [work] days.”

“The U.S., whose central-bank chief, Alan Greenspan, has praised the wonders of productivity over the past decade, was in the middle of the pack with an average of 96 working days per worker lost each year. Which land fared worst, with 127 lost days? Hint: It has an institutionalized 35-hour work week. Answer: France.

This has a huge economic cost. In the U.S., the wasted days cost $800 billion (€662.72 billion), or 7.3% of gross domestic product. The study says that chief executives don’t pay enough attention to improving management control and supervision and don’t fully appreciate their role in undermining labor productivity. “This is unfortunate because addressing these weaknesses could make a big difference to future productivity growth,” the study said.

In recent years, economists have tried to get a grip on reasons behind low productivity in major economies such as Europe. The issue is growing more urgent as the general population ages. In the decades ahead, a smaller work force will need to be more productive to support a larger number of retirees.

In contrast to the Proudfoot study, the European Central Bank earlier this summer found productivity was suffering in Europe primarily from companies’ failure to seize upon new technology, which is more in line with conventional wisdom.

The ECB showed that annual productivity growth in the euro zone has slowed since the mid-1980s, dropping to 0.9% between 1996 and 2003 from 1.9% in the 1980s. At the same time, the productivity gap grew between the euro zone and the U.S.”

These are fascinating cultural differences which (apparently) lead to unfavorable comparisons between the US and Europe.

If jobs in the U.S. are migrating to Asia, well then what the heck is going to happen in Europe? They have a whole lot of heavy lifting to do to catch up with us in temrs of productivity — and, apparently, a lot fewer days each year and hours each week to accomplish it . . .

Sources:
Slowing European Productivity May Be Boss’s Fault, Study Says
G. Thomas Sims
Wall Street Journal, September 6, 2004

http://online.wsj.com/article/0,,SB109441655407210031,00.html

Managing for Mediocrity- How six barriers impact productivity globally

http://www.proudfootconsulting.com/prod_study.asp

New technologies and productivity growth in the euro area
by Ronald Albers and Focco Vijselaar, February 2002,  445 kb
Published in: Empirical Economics (forthcoming)

http://www.ecb.int/pub/pdf/scpwps/ecbwp122.pdf

Employment and productivity growth in service and manufacturing sectors in France, Germany and the US
by Till von Wachter, March 2001,  945 kb

http://www.ecb.int/pub/pdf/scpwps/ecbwp050.pdf

Category: Finance

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7 Responses to “Weak European Productivity: Blame it on the Boss”

  1. Lousy Management

    Barry Ritholtz has an interesting post about European (un)productivity and how lousy management is at fault….

  2. msw says:

    Naw. European (by which I think we mean OECD Europe) “productivity” (by which I think the WSJ means gdp/capita) is lower than American entirely because of longer vacations and shorter work-weeks. If it were management issues, then you should expect gdp/hour worked to be lower, which it isn’t. GDP/hour worked is much higher in OECD Europe than in the US (with the exception of Britian). If GDP/hour worked scaled linearly, and Europeans had American-style 2 weeks vacation and 50 hour weeks, per capita GDP would be as much as 20% higher in German than in the US.

    Of course, marginal gdp/hour worked is probably less than the average (my Fridays are a lot less productive than my Mondays), which is why Europe’s decision to “purchase” leisure is a superior decision to the US’s decision of purchasing more crap. Reducing working hours by 5% costs you less than 5% in GDP. The distributional effects are better as well.

  3. spencer says:

    Goldman Sacchs had a good study several months ago where they broke the German data out of total Europe data and showed that the slower growth of output and productivity was only a german problem — for the rest of Europe growth and productivity growth was as good as in the US.

  4. M1EK says:

    More interestingly for me in my particular hobby is estimating how much improvement we’re going to see in European productivity (compared to the US) as oil prices continue to rise. I can’t think of any reason why they won’t see productivity rise (or decline less; but I assume currency would inflate…) due to their lower dependence on cheap oil to keep their consumer demand going.

  5. Mahalanobis says:

    Is Poor Management Contributing to Low European Productivity?

    Keep in mind that European productivity is already low relative to its peers, and rapid ageing is likely to make it worse. But why is Europe in the spot that it is with productivity? Why aren’t European nations as productive as their economic peers? La…

  6. Is Poor Management Contributing to Low European Pr

    Keep in mind that European productivity is already low relative to its peers, and rapid ageing is likely to make it worse. But why is Europe in the spot that it is with productivity? Why aren’t European nations as productive as their economic peers? …

  7. Is Poor Management Contributing to Low European Pr

    Keep in mind that European productivity is already low relative to its peers, and rapid ageing is likely to make it worse. But why is Europe in the spot that it is with productivity? Why aren’t European nations as productive as their economic peers? …