Europe's productivity keeps outpacing the US
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Europe's productivity keeps outpacing the US<br>A closer look at some famous statistics.
Seth Ackerman<br>Feb 19, 2026
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UPDATE: Paul Krugman comments in a post on his Substack: “This post was inspired in large part by an extremely informative post by Seth Ackerman that has generated a lot of discussion in the circle of economists who worry about such matters.”
Since COVID, a narrative about economic stagnation in Europe alongside booming productivity in America — “Eurosclerosis,” to use an old but newly fashionable term — has attained the status of accepted fact in discussions of global politics. Though analysts may differ about what conclusions to draw or what steps should be taken, the “fact” itself is seldom questioned.<br>Since all of the relevant numbers on this subject come from a handful of marquee statistical series produced by leading international organizations — and since they’re all constantly scrutinized and litigated by legions of economists and policy experts — you might think the raw facts contained in them would be a settled question. But there’s a serious problem lurking in these data, one that seems to have gone entirely unnoticed in the discourse.<br>To compare GDP levels between countries, raw monetary figures — like the UK’s 2.9 trillion pounds of 2024 GDP or the US’s 29.2 trillion dollars — have to be converted to a common unit of measure. This is typically done using purchasing power parities (PPPs), which are like ordinary exchange rates, but adjusted for differences in national price levels.<br>For example, in 2024 the UK’s market exchange rate was 0.782 pounds to the dollar, meaning 100 US dollars could buy 78.2 pounds on the currency market. But according to the PPP data, a basket of goods that cost $100 in America only cost 66.4 pounds in the UK, because the UK price level, after converting from dollars to pounds, was about 15% lower than America’s. At the PPP ratio of 0.664, therefore, UK GDP was about 15% higher than at market exchange rates: $4.2 trillion vs. $3.7 trillion.<br>The national price levels that go into these calculations are measured just as you might expect: armies of clipboard-wielding field economists in countries around the world collect prices on thousands of products, which are then carefully matched with comparable products in other countries. This global effort is coordinated by the International Comparison Program (ICP), an official UN body housed at the World Bank, which releases a fresh set of global estimates every few years, most recently for 2021.<br>According to these data, which are available at the World Bank’s website, the 17 countries of Western Europe1 had a combined PPP-converted GDP of $28.8 trillion in 2024 — almost identical to the US’s $29.2 trillion. If you go back a decade, to 2014, the numbers are, again, almost identical: $17.2 trillion versus $17.6 trillion. Go back another decade, to 2004, and the numbers are once again essentially the same: $11.9 trillion versus $12.2 trillion.<br>Judging from these figures, Europe’s GDP would seem to be keeping pace with America’s just fine, pace conventional wisdom. Why, then, do we constantly hear the opposite?<br>The answer is that there are two PPP-converted GDP data series, and they tell completely different stories about Europe’s relative performance.<br>In addition to the series from which the numbers above are drawn, which is labeled “GDP, PPP (current international $)” in the World Bank dataset, there’s another series called “GDP, PPP (constant 2021 international $)” Nearly identical twinned series are published by other institutions, such as the OECD’s ”PPP-converted GDP, current prices” and “PPP-converted GDP, chain-linked volume.“ For brevity, I’ll refer to these two types of data generically as current-price and constant-price GDP .<br>Although the two metrics give similar numbers for the most recent year (2024), the constant-price series diverges further and further from the current-price series the deeper you go back in time, with Europe appearing to get richer and richer relative to America, and thus poorer and poorer as you approach the present.
According to the constant-price GDP metric, US output exceeded Europe’s by 4.3% in 2024. But go back a decade earlier, to 2014, and the positions are reversed, with Europe’s GDP exceeding the US’s by 5.5%. Go back another decade, to 2004, and Europe’s advantage grows to 13.7%.<br>Go all the way back to 1990, the start of the World Bank series, and Europe’s GDP is reported to be 30% larger than America’s. Those who claim that Europe’s economy is lagging rest their case on the credibility of these numbers.<br>The organizations that publish these series typically explain the difference between them by saying that current-price PPPs are appropriate for comparing GDP between countries at a single point in time while constant-price PPPs are designed for comparisons across different...