<p>Regarding the overall level, a big part is about Western Europeans working considerably lower hours than US Americans, see e.g. <a href="https://en.wikipedia.org/wiki/List_of_countries_by_average_annual_labor_hours" rel="nofollow noreferrer">https://en.wikipedia.org/wiki/List_of_countries_by_average_annual_labor_hours</a>. If you just look at productivity, i.e., income per hour worked, the differences across the largest developed countries are rather small, see e.g. <a href="https://www.oecd.org/en/data/indicators/gdp-per-hour-worked.html" rel="nofollow noreferrer">https://www.oecd.org/en/data/indicators/gdp-per-hour-worked.html</a>. There is a debate about how much of that difference is due to higher distortionary labor taxation vs. preferences for leisure. But incentives to work are surely a big part of the story.</p>
<p>Nevertheless, there is considerable evidence that the European Union as a whole (as opposed to well-performing EA economies like Germany or the Netherlands) is falling behind the US. The explanation for that is most likely multicausal:</p>
<ul>
<li>R&amp;D expenditures are considerably higher in the US than in the EA</li>
<li>The US invests more into intangible capital and ICT</li>
<li>Business dynamism is higher in the US, leading to lower misallocation of resources</li>
</ul>
<p>Some references are <a href="https://ecipe.org/publications/keeping-up-with-the-us-why-europes-productivity-is-falling-behind/" rel="nofollow noreferrer">https://ecipe.org/publications/keeping-up-with-the-us-why-europes-productivity-is-falling-behind/</a>, <a href="https://onlinelibrary.wiley.com/doi/10.1111/caje.12103" rel="nofollow noreferrer">https://onlinelibrary.wiley.com/doi/10.1111/caje.12103</a>, and <a href="https://onlinelibrary.wiley.com/doi/10.1111/j.1467-6419.2012.00725.x" rel="nofollow noreferrer">https://onlinelibrary.wiley.com/doi/10.1111/j.1467-6419.2012.00725.x</a></p>
<p>Related to this is also the answer at <a href="https://economics.stackexchange.com/questions/59375/why-has-the-us-recovered-from-the-financial-crisis-much-more-successfully-than-e/59376#59376">Why has the US recovered from the financial crisis much more successfully than Europe?</a></p>

CC BY-SA 4.0
2024-11-04T12:55:34.067Z
Thank you very much for your answer, I am surprised a real expert was willing to respond. However it seems like this disparity persists even when adjusted for hours worked. Do you have another explanation? Thanks again for your help. https://en.wikipedia.org/wiki/List_of_countries_by_labour_productivity https://www.reddit.com/r/FluentInFinance/comments/1dv51mx/american_workers_earn_more_than_their_developed/
df df
CC BY-SA 4.0
2024-11-04T13:44:09.247Z
The Reddit link uses income after taxes. Western European countries have higher tax rates (and public services). The OECD numbers I linked above are before taxes. Here, income is very similar. Thus, the difference in net consumption is taxes/public services and hours worked.
jpfeifer
CC BY-SA 4.0
2024-11-04T14:00:42.213Z
I said in my initial post that this adjusts for government transfers, and the links I gave show that this disparity persists when we adjusts for hours worked. In addition, social spending per capita (https://en.wikipedia.org/wiki/List_of_countries_by_social_welfare_spending) and government budget per capita (https://en.wikipedia.org/wiki/List_of_countries_by_government_budget_per_capita) in the US are around the Western European average, so that cannot account for the difference. Do you have another reason?
df df
CC BY-SA 4.0
2024-11-05T17:17:28.040Z
I guess we need to to define the object of interest precisely. First, what do you classify as "Western Europeans"? The labor productivity of France, Germany, and the Netherlands is similar to the US. Spain and Italy take down the EU average considerably. Second, is it about some measure of income after transfers and taxes (which reflects tax and social systems as well as household sizes ) or is it about raw productivity differences?
jpfeifer
CC BY-SA 4.0
2024-11-05T17:50:48.947Z
Western European means Western Bloc during Cold War and part of Europe. I suppose what I am saying is raw productivity, then, although I think the other metric should be roughly similar, as it should be adjusted for hours worked (but if not then raw productivity). Thanks again for your help.
df df
CC BY-SA 4.0
2024-11-06T14:10:02.053Z
I added some explanations and literature for the larger block of EA countries.
jpfeifer
CC BY-SA 4.0
2024-11-06T18:32:06.127Z
This is great, exactly what I was looking for!
df df
CC BY-SA 4.0
2024-11-04T11:41:40.583Z
2024-11-06T14:06:07.557Z
2024-11-06T14:06:07.557Z
jpfeifer
<p>According to <a href="https://en.wikipedia.org/wiki/Disposable_household_and_per_capita_income" rel="nofollow noreferrer">https://en.wikipedia.org/wiki/Disposable_household_and_per_capita_income</a>, PPP-adjusted median disposable income (so inclusive of cost of living, taxes, and social transfers) is considerably higher in the United States than almost all of Western Europe. What is the reason for this disparity?</p>
<p>Edit: Hours worked does not explain it either, according to <a href="https://www.reddit.com/r/FluentInFinance/comments/1dv51mx/american_workers_earn_more_than_their_developed/" rel="nofollow noreferrer">https://www.reddit.com/r/FluentInFinance/comments/1dv51mx/american_workers_earn_more_than_their_developed/</a> and <a href="https://en.wikipedia.org/wiki/List_of_countries_by_labour_productivity" rel="nofollow noreferrer">https://en.wikipedia.org/wiki/List_of_countries_by_labour_productivity</a></p>

<macroeconomics>
Why are Western Europeans so much poorer than Americans?
df df
# Why are Western Europeans so much poorer than Americans?

(Asked by: username_0 on 2024-11-04)

According to <https://en.wikipedia.org/wiki/Disposable_household_and_per_capita_income>, PPP-adjusted median disposable income (so inclusive of cost of living, taxes, and social transfers) is considerably higher in the United States than almost all of Western Europe. What is the reason for this disparity?

Edit: Hours worked does not explain it either, according to <https://www.reddit.com/r/FluentInFinance/comments/1dv51mx/american_workers_earn_more_than_their_developed/> and <https://en.wikipedia.org/wiki/List_of_countries_by_labour_productivity>

**Tags:** macroeconomics


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## 1 answers

### Answer by username_1 on 2024-11-04. Score: 1

Regarding the overall level, a big part is about Western Europeans working considerably lower hours than US Americans, see e.g. <https://en.wikipedia.org/wiki/List_of_countries_by_average_annual_labor_hours>. If you just look at productivity, i.e., income per hour worked, the differences across the largest developed countries are rather small, see e.g. <https://www.oecd.org/en/data/indicators/gdp-per-hour-worked.html>. There is a debate about how much of that difference is due to higher distortionary labor taxation vs. preferences for leisure. But incentives to work are surely a big part of the story.

Nevertheless, there is considerable evidence that the European Union as a whole (as opposed to well-performing EA economies like Germany or the Netherlands) is falling behind the US. The explanation for that is most likely multicausal:

* R&D expenditures are considerably higher in the US than in the EA
* The US invests more into intangible capital and ICT
* Business dynamism is higher in the US, leading to lower misallocation of resources

Some references are <https://ecipe.org/publications/keeping-up-with-the-us-why-europes-productivity-is-falling-behind/>, <https://onlinelibrary.wiley.com/doi/10.1111/caje.12103>, and <https://onlinelibrary.wiley.com/doi/10.1111/j.1467-6419.2012.00725.x>

Related to this is also the answer at [Why has the US recovered from the financial crisis much more successfully than Europe?](https://economics.stackexchange.com/questions/59375/why-has-the-us-recovered-from-the-financial-crisis-much-more-successfully-than-e/59376#59376)

> **Comments:**
> **username_0**: Thank you very much for your answer, I am surprised a real expert was willing to respond. However it seems like this disparity persists even when adjusted for hours worked. Do you have another explanation? Thanks again for your help. https://en.wikipedia.org/wiki/List_of_countries_by_labour_productivity https://www.reddit.com/r/FluentInFinance/comments/1dv51mx/american_workers_earn_more_than_their_developed/  
> **username_1**: The Reddit link uses income after taxes. Western European countries have higher tax rates (and public services). The OECD numbers I linked above are before taxes. Here, income is very similar. Thus, the difference in net consumption is taxes/public services and hours worked.  
> **username_0**: I said in my initial post that this adjusts for government transfers, and the links I gave show that this disparity persists when we adjusts for hours worked. In addition, social spending per capita (https://en.wikipedia.org/wiki/List_of_countries_by_social_welfare_spending) and government budget per capita (https://en.wikipedia.org/wiki/List_of_countries_by_government_budget_per_capita) in the US are around the Western European average, so that cannot account for the difference. Do you have another reason?  
> **username_1**: I guess we need to to define the object of interest precisely. First, what do you classify as "Western Europeans"? The labor productivity of France, Germany, and the Netherlands is similar to the US. Spain and Italy take down the EU average considerably. Second, is it about some measure of income after transfers and taxes (which reflects tax and social systems as well as household sizes ) or is it about raw productivity differences?  
> **username_0**: Western European means Western Bloc during Cold War and part of Europe. I suppose what I am saying is raw productivity, then, although I think the other metric should be roughly similar, as it should be adjusted for hours worked (but if not then raw productivity). Thanks again for your help.  
> **username_1**: I added some explanations and literature for the larger block of EA countries.  
> **username_0**: This is great, exactly what I was looking for!  

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