2007 September 03 Monday
Americans Produce Most Per Person Per Year

Norway surpasses the US in productive value per hour worked but that might be due to North Sea oil wealth. I'd like to know how Norway's hourly productivity trend has changed since North Sea oil production peaked.

GENEVA (ILO News) – While productivity levels have increased worldwide over the past decade, gaps remain wide between the industrialized region and most others, although South Asia, East Asia, and Central & South-Eastern Europe (non-European Union) & CIS have begun to catch up, the International Labour Office (ILO) said in a new report (Note 1) published today.

The ILO report, entitled “Key Indicators of the Labour Market (KILM), fifth Edition” indicates that the U.S. still leads the world by far in labour productivity per person employed in 2006 despite a rapid increase of productivity in East Asia where workers now produce twice as much as they did 10 years ago.

What’s more, the report also shows that the productivity gap between the US and most other developed economies continued to widen. The acceleration of productivity growth in the US has outpaced that of many other developed economies: With US$ 63,885 of value added per person employed in 2006, the United States was followed at a considerable distance by Ireland (US$ 55,986), Luxembourg (US$ 55,641), Belgium (US$ 55,235) and France (US$ 54,609).

However, Americans work more hours per year than workers in most other developed economies. This is why, measured as value added per hour worked, Norway has the highest labour productivity level (US$ 37.99), followed by the United States (US$ 35.63) and France (US$ 35.08).

Norway's results are inflated by oil wealth. France's results are more telling. High tax and high regulation France does not trail the US by much. Why is that?

To make these comparisons more meaningful I'd like to see the value added per hour worked measure broken out by age, race, and sex. My fear is that demographic forces are going to cause a drop in the productive potential of the US labor force and that the same could happen to some other countries as well. We should start to see this effect as the baby boomers retire and less skilled ethnic groups become larger fraction of the US labor force.

East Asia has witnessed the biggest percentage increase in labor productivity over the last decade.

In East Asia where productivity levels showed the fastest increase, doubling in ten years, output per worker was up from one-eighth in 1996 to one-fifth of the level found in the industrialized countries in 2006. Meanwhile, in South-East Asia & the Pacific productivity levels were seven times less and in South Asia eight times less than in the industrialized countries, the report reveals.

In the Middle East and Latin America & the Caribbean, the value added per person employed is nearly three times less than it is in the developed economies; in Central & South Eastern Europe (non-EU) & CIS the level is 3.5 times less, and four times less in North Africa. The widest gap is observed in sub-Saharan Africa where the productivity level per person employed is one-twelfth of that of a worker in the industrialized countries.

Germans work 500 hours less per year than Americans!

The UN International Labour Organisation (ILO) said the average Australian, Canadian and Japanese worker worked about 100 hours, or 2.5 weeks less per year than the average American.

Brazilians and British workers worked 250 hours, or more than five weeks less, while Germans worked roughly 500 hours, or 12.5 weeks less.

But in some Asian countries people work more than 2200 hours per year.

The U.S. employee put in an average 1,804 hours of work in 2006, the report said. That compared with 1,407.1 hours for the Norwegian worker and 1,564.4 for the French.

It pales, however, in comparison with the annual hours worked per person in Asia, where seven economies — South Korea, Bangladesh, Sri Lanka, Hong Kong, China, Malaysia and Thailand — surpassed 2,200 average hours per worker. But those countries had lower productivity rates.

The migration of Chinese people from farms into city jobs causes a huge increase in labor productivity.

The vast differences among China's sectors tell part of the story. Whereas a Chinese industrial worker produces $12,642 worth of output — almost eight times more than in 1980 — a laborer in the farm and fisheries sector contributes a paltry $910 to gross domestic product.

Here is some bad news about US agricultural productivity which probably comes from letting in masses of low skilled workers from south of the US border with Mexico:

The difference is much less pronounced in the United States, where a manufacturing employee produced an unprecedented $104,606 of value in 2005. An American farm laborer, meanwhile, created $52,585 worth of output, down 10 percent from seven years ago, when U.S. agricultural productivity peaked.

We should deport all the illegal aliens and stop allowing in migrant workers to do farm work. Farmers can modernize with machinery and other practices that can substitute for the use of cheap labor.

Farmers say that farming is an incredibly valuable activity. But if farming was so valuable then the amount of economic value created per farm worker wouldn't be so low.

I am reminded of the recent Gene Expression interview of UC Davis economic historian Gregory Clark about his book A Farewell to Alms: A Brief Economic History of the World where Professor Clark argues that economic institutions matter far less for economic performance than economists believe.

3. What do you think are the weakest links in the now-conventional "Institutions Matter" chain of reasoning?

Clark: The book challenges the modern orthodoxy of economics - that people are essentially the same everywhere, and with the right set of institutions, growth is inevitable - in three ways. First by showing that there were societies like medieval England where the institutional structure provided every incentive for growth, yet there was no growth. Second by pointing out that by objective measures the institutions of many highly successful modern economies, such as in Scandinavia, provide much poorer incentives to individuals than those of very poor economies. And lastly by showing that in the long run economic institutions that would prevent growth tend to get replaced endogenously by ones that are pro-growth.

France has a larger government as a percentage of total economy, more labor market regulation, and more restrictions on hours worked as compared to the United States. In spite of that the French end up being almost as productive per hour worked as Americans. This supports Clark's argument.

One argument for why the French lag so little is that they keep more of the lower productivity people on welfare and hence out of the pool of people who work and get their hourly productivity measured. But the percentage of their population kept unemployed does not strike me as large enough to account for the small gap between US and American hourly labor productivity.

Update: Services jobs have replaced agriculture as the biggest source of world employment.

As recently as 1996, agriculture accounted for 42 percent of world employment, with another 21 percent of workers in goods-producing industries and 37 percent in services. By last year, the ILO says in a report released over the weekend, 42 percent were in services, 37 percent in agriculture, and 22 percent in industry.

It's too soon to talk about a white-collar world. Many of these newly urbanized workers aren't employed so much as they are scraping for survival on city streets. Mr. De Santos's own life has become easier, yet he recalls his father's farm as "a civilized life compared to the life the poor live today in big cities."

Automation is going to continue to cut back on the use of human labor in agriculture.

Share |      By Randall Parker at 2007 September 03 02:41 PM  Economics Labor


Comments
Rob said at September 3, 2007 3:17 PM:

No one can believe institutions are the be all and end all of economic growth. MIT is a fantastic institution, but if all the professors were replaced with people with Down Syndrome, it's output would decline dramatically. Therefore, institutions are not the only thing that matter.

I can't wait for my Nobel Prize.

I thought the most interesting item in Clark's book was the table of textile industry innovators. The majority had their factories destroyed by "Machine Breakers." Maybe before whenever it was, nearly everyone was a Luddite and any innovation that increased labor productivity would have been destroyed.

Dragon Horse said at September 3, 2007 3:57 PM:

Aren't the French and the Irish some of the least intelligent people in Europe?

John S Bolton said at September 3, 2007 11:24 PM:

The US figures are inflated by foreign central bank dollar support.

Not all of our manufacturing is subject to foreign competition, much less thoroughly so.

Stephen said at September 4, 2007 1:02 AM:

That's a coincidence Randall, I drafted but never go around to posting a reply to your earlier article "Swedes Still Tops On Vacation Days". I was going to provide you with a link showing the world rankings of GDP per capita per hour and say something snarky to counter the presumption that those socialists in Europe are inefficient when compared to US.

I've always been astonished at how little time US citizens receive or take in vacation, and how they accept it as if it were the norm in the western world. Seems to me that using PPP figures really illustrates the point.

We're all slaves to the man, but its astonishing how some slaves like being slaves.

Kenelm Digby said at September 4, 2007 3:35 AM:

I'm sorry, but I know I will be excoriated here but I find this definition of 'productivity' a load of meaningless bullsh*t.
I suppose paper shuffling and pontificating down a phone by a highly-paid (but in my opinion producively worthless - he produces nothing of any physical value - US lawyer) is considered 'highly productive in the terms that a lot of cash changes hands for his 'services', but a Chinese seamstress who makes dozens of pair of jeans per day - something that actually has physical value, but is poorly paid is not considered 'productive'.
This blatantly erroneous concept must be exposed for the fallacy that it is.

Wolf-Dog said at September 4, 2007 5:08 AM:

But if the average or even median output per American worker is so high, why is the median income so low, and stays low? It must be the case that the gains are accumulated by the top successful people. This productivity phenomenon is resulting in a historic transfer of wealth. In the year 2000, the top 10 % richest families in the US owned 90 % of the wealth in the US. But by 2020, it is almost guaranteed that the top 5 % will own 95 %. But this asymmetry, would almost certainly make the economy more unstable and more vulnerable to depressions. And nothing can be done about this situation because the average IQ of any group directly influences success and income, which means that the upper class will get exponentially richer whenever there are no confiscatory taxes and regulations like in France. Incidentally, France does have a "wealth tax" that takes away a symbolic small percentage of the net worth of rich citizens, although it is son infinitesimal that nobody complained about it yet.

black sea said at September 4, 2007 5:44 AM:

I have seen the argument made that the relatively short French work week contributes to the country's high hourly productivity rate. During the six or seven hours a day that people are actually working, they focus on those activities that are most productive, and spend less time tinkering with their files, moving icons around on their computer screen, and sending vacuous emails to their friends. It makes some sense. Most people know that, in a six hour work day, they will accomplish more than half of what they would get done in 12 hour work day. Fatigue and boredom take their toll. Plus, there are only so many highly productive tasks that can be crammed into a long work day.

D Flinchum said at September 4, 2007 6:55 AM:

Part of that US "productivity" is the result of all of those illegal aliens working off the books. If they aren't on record, they aren't counted.

Carl Shulman said at September 4, 2007 7:49 AM:

The high unemployment rate for the unskilled (firing restrictions, minimum wage, etc) in France means that they don't drag down the mean. In contrast, the U.S. economy is good at putting unskilled folk to work in Wal-Mart and the like. If all of the unemployed in the banlieues were working at Carrefour the productivity gap would increase. The McKinsey Global Institute has done good micro-productivity studies of a variety of industries across countries, which you can access online.

www.mckinsey.com/mgi/

Big Bill said at September 4, 2007 9:37 AM:

Pity we cannot see the French data broken out as you suggest, Randall. As I understand, once the French decided that there was "no such thing as race" they refused to gather data on it. They are thus unable to break out data like babies- or income- or employment-per-Muslim/African immigrant and the like. Please correct me if I am wrong.

I do wonder about the illegal aliens being "off the books" as one commenter suggested. Whenever I read Edwin Rubenstein on VDARE (he of the Hispanic employment index) he seems to be able to extract some Hispanic (~= to illegal aliens) data on employment at least. If the Feds data tells us total payroll and we can determine the number of workers that have been left off the books we ought to be able to figure out the corrected-for-illegals-productivity. I imagine it will not be easy, however.

From their perspective, "why help Americans see just how much our productivity is dropping?"

Dave said at September 4, 2007 11:05 AM:

The only reason European Socialists have higher productivity per hour is because their economies are so over regulated that unless you are highly productive you are unemployed. Which biases the European figures.
Every year we get this rubbish in Britain of how the French are such better workers than us, but in reality they have double our employment figures. Recently EU countries have become very good at hiding their true unemployment stats, a German friend of mine was forced to go onto a basic computer training course even though he already had previously worked in computers and to him it was trivial, it was just to get him off the unemployed stats and onto 'in education' instead. In Britain they are raising the school leaving age to 18 instead of 16, unless you can walk into a job.

Irish Savant said at September 4, 2007 2:34 PM:

Drawing economic conclusions from the Nordic countries and seeking to extrapolate them to others is highly unreliable. These countries have unique social systems, moral values, social solidarity, volunteerism, respect for law and other such features well ahead of other countries. In a nutshell, their economic models - which depend on such attributes - cannot be easily replicated in less gifted societies. Having said that, the Nordics are well in the process of throwing it all away as they welcome in millions - literally - of 3rd world detritus (see http://irishsavant.blogspot.com/2007/04/update-sweden.html)

John S Bolton said at September 4, 2007 2:48 PM:

Another part of the explanation of this might be that low value-added

manufacturing has been largely shut down here due to foreign central

banks' dollar support, making such goods uncompetitive. Isn't there something fishy

in the poorest countries being higher in productivity than their relative total outputs

relative to the richest would suggest? Are some adjustments being put in like 'purchasing power'?

adrian said at September 4, 2007 3:09 PM:

the french only work 35 hrs per week. people are most productive for the first 35 hrs per week. after about 40 or so, say as the day ends, they tend to slack off and are much less productive for the last few hrs. if the french worked beyond 35 hrs they may tire and become less productive. comparing france and ammerica in this regard is like comparing the average speed of a sprinter vs long distance runner, ok the sprinter has a higher avg, but he stops pretty quickly. also, the french don't allow their unproductive minorities to work, and this lack of mcjob creation due to rigid labor market laws artifically inflates french productivity. low iq french don't work, they live on welfare, so they aren't included in the statistics! the rigidity of the french labor market has ensured that companies really do look for the best and most productive, leaving a low productive mass of individuals outside.

Randall Parker said at September 4, 2007 6:24 PM:

Irish Savant,

I quite agree on all points. Endogenous features of the Nordics make market capitalism and affluence possible there. They can manage fairly high living standards even living with a large welfare state.

Yes, they are throwing it away. A loss of homogeneity will cost them trust and social capital. Plus, the people they are bringing in are dumber than them. Plus, the people coming in embrace a hostile religion.

Randall Parker said at September 4, 2007 6:31 PM:

adrian, Black Sea,

Whether people become more or less efficient with more hours depends on the kinds of work they are doing.

In a lot of engineering and software development environments a smaller team that works more hours loses less overhead coordinating with each other. More team members mean more people going to status meetings, all company meetings, training meetings for whatever new management process has come down from above, and so on. I've seen small teams working longer hours get a lot more done - especially if they are incentivized to produce a lot.

Also, coming in early and staying late is a great way to get uninterrupted work done.

My guess is that the US economy makes better use of the most productive people.

Kenelm Digby said at September 5, 2007 3:40 AM:

My point is that all this talk of 'productivity' is bullsh*t, a lot of jargon by second-rate 'economists' to pull the wools over the eyes of the public.
No one doubts that the Chinese, each year, 'produce' vastly greater numbers of houses, office blocks, roads, railways, power plants,television sets, computers, textiles, toys, etc etc than the USA or any European nation does - and all for less 'money' paid as wages (perhaps the only real definition of productivity) and most probably for less time actually expended on the job - yet we are lead to believe that 'Chinese productivity' is vastly lower than that in the West - an argument that is simply unbelievable and untenable - the argument is lost in the morass of apparent cash values and purchasing power parities - no one should by naive enough to take these nonsense statistics seriously and try to argue from them that the 'average' western worker is 'far more productive' or 'harder working' - when this is plainly untrue, yes, yes, I'm familiar with the argument about the use of capital, but the fact remains that in many high-capital industries such as steel and ship-building, micro-chip making etc, the Chinese still 'produce' more per unit time or dollar.

The manifestation is in the trade deficit.

Kenelm Digby said at September 6, 2007 3:24 AM:

America employs thousands upon thousands of men and women as security guards.
What is their 'productivity'?, What do they actually 'produce' apart from intestinal gas?
Likewise for the legions of waitresses, janitors and others who form the bulk of the jobs 'created' in the new economy (I mean no disrespect to any of them, they are the victims of bad economics promoted by bad politicians).
You laugh at the 'low productivity' of a Chinese rice farmer - but at least he actually produces a vitally important commodity for his nation - strangely an American security guard standing at a store doorway all day is rated as being 'substantially more productive' than the Chinese peasant.
For this reason, and others, the whole concept is bullsh*t.


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