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The Bureau of National Affairs

No. 101  Friday May 24, 2002 Page A-13
ISSN 1523-567X
Regulation, Law & Economics

International Economics
EU Workers 20 Percent Less Efficient
Than U.S. Workers, Commission Report Says 

     BRUSSELS--European Union workers have failed to close the gap with the United States when it comes to the productivity as most workers in the 15 EU member states are 20 percent less efficient, the European Commission said in a new report published May 23 on the competitiveness of industry in the 15 member states.

     In addition, the European Commission said European workers in general have two years less education than Americans and the resulting shortage of skilled labor poses an ever bigger threat to the growth of the service sector in the EU.

     Enterprise Commissioner Erkki Liikanen told journalists when he unveiled the report that if the productivity of EU workers does not improve the EU will miss its goal of making the 15 members the most competitive knowledge-based economy in the world by 2010, a target established at a special economic summit in Lisbon in 2000. 

     "At their meeting a little two over two years ago, EU leaders agreed on a strategic goal," said Liikanen. "The recent productivity and growth performance suggests that this strategic goal will be missed unless member states and the Commission show more determination in pursuing economic reforms. 

     "Further efforts are needed to pursue liberalization and improve the quality of existing regulations," Liikanen added. "We need to enhance further the skills of the labor force and enhance entrepreneurship and innovation the EU."

     Liikanen also used the publication of the report to counter claims recently made by German Chancellor Gerhard Schroeder that the Commission was unfairly choking the competitiveness of Germany's economy. 

     "It is obvious that what the Commission is trying to do is improve the competitiveness of all the EU member states economy," said Liikanen. "Our policies have received a lot of attention of late. This report sums up what is needed and why."

     When it comes to productivity Liikanen said that the EU had caught up with U.S. workers by the mid 1990s but the gains were short lived.

     "In the past few years the productivity gap has widened again," Liikanen said. "Labor productivity in the EU is at present less than 80 percent of the United States level." 

     In addition, Liikanen said "the strong economic growth in the United States in the second half of the 1990s left the EU further behind in terms of growth and employment. GDP per head in the EU is currently less than 70 percent of the American level."

     Bad News for Services Sector

     Liikanen said the bad news on poor productivity gains was even worse when considering the service sector, especially since this is the sector that is expected to grow the most in the coming years. "Data for the second half of the 1990s confirm the relative sluggishness of productivity growth in services as productivity in manufacturing was almost twice as high as in services," said Liikanen. What increase there was in the services sector was due to the expansion of the sector while in manufacturing it was in actual gains in productivity, Liikanen added. 

     "If the services sector is doomed to permanently low productivity growth, its high and increasing share in the economy will result in a deceleration of overall productivity growth," Liikanen said. 

     On the issue of education, Liikanen said the number of jobs requiring upper secondary education rose by almost 4 percent per year in the late 1990s in the EU.

     "Over the past decades, the EU has been able to raise the educational standards of its population and to close a part of the gap against the United States and Japan," Liikanen said. "At present, the adult population in the EU has on average completed 11 years of schooling. This compares to almost 13 years in the United States.

     "In the context of unacceptably high unemployment and the simultaneous emergence of skill gaps, more needs to be done to raise the educational standards in the EU."

     By Joe Kirwin

     The Bureau of National Affairs

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