The EU economy is 65% the size of the American one, representing a 10% decline over the last decade. This shift is partly due to Europe’s slow population growth compared to the USA.
Furthermore, GDP per capita is higher and has grown faster in the USA than in Europe… what a scenario…
However, direct comparisons of GDP per capita do not adequately reflect economic well-being, as they do not consider differences in the cost of living or the actual hours worked.
If we make this adjustment, called purchasing power parity (PPP), which balances the cost of living between countries and productivity per hour worked, it yields a different result.
In terms of PPP, the EU economy is close to 95% the size of the USA’s, similar to a decade ago, although GDP adjusted by PPP per capita has grown more in the USA than in most of Western Europe.
Nevertheless, adjusting for productivity, considering the hours worked, European countries fare better. This is due to demographic factors and differences in vacation allowances and other social benefits, resulting in fewer hours worked in Europe.
Despite differences in how these metrics are calculated, overall, Europeans receive as much compensation for our work as Americans do. The gap in total GDP between Europe and the USA could be reduced by increasing working hours, but this could clash with the European preference for valuing leisure time.
Josep Ma Romances, President and Founder of Closa Capital.
