Justin Smith
Macroeconomic Theory
“Chasing the Leader” Assignment
3/19/03
This is an article comparing the living standards of the U.S. and Europe. The U.S uses GDP per capita and Europe uses GDP per head to measure their living standard. In examining the living standards between these two countries, the author looks at both productivity and GDP in his analysis. America has been the world’s economic leader for over a century. Economic theory suggests that Western Europe is catching up. GDP per head is only three-quarters of that in the U.S., but European productivity, measures by output per hour worked, has in fact almost caught up with the U.S. Europe’s productivity has been in a surge since 1950. This is largely expained by reconstruction after the war and belated exploitation of electricity and the mass production of cars. The puzzle, as stated by the article, is why Europe’s GDP per head has lagged so far behind productivity. GDP per head rose sharply from the mid 19th century, but then flattened off in 1970. Germany’s GDP per man-hour is 1% higher than in America, but its GDP per person is 25% lower. The main reason pointed out by the author is the average hours worked in Europe have fallen sharply. In part, this reflects a preference for shorter working weeks and longer holidays.
