Documenting the widening transatlantic gap

Over the past 20 years, the gap in per capita income between the United States and the eurozone, which stood at around €10,000 in 2000, has not narrowed. It has widened since 2012. GDP per capita in the eurozone fell from 77% to 72% of US GDP per capita the 2000 and 2019, thus diverging from the level of wealth on the other side of the Atlantic.This gradual decoupling of GDP per capita started before the pandemic. This Policy Brief therefore looks at this European lagging – the widening gap – over the twenty years before the pandemic and the energy crisis, from 2000 to 2019, and explores possible explanations for this decoupling. Our results show that divergence between the eurozone and the United States is mainly due to lower hour productivity growth in the former. It also appears that capital, much more than differences in working hours, is a major factor in the divergence between the two zones. Productive efficiency diverges because of lower capital intensity in information and communication technology (ICT) equipment on the one hand, and in intangible assets on the other. The amount of ICT capital per job was five times higher in the United States in 2019; the amount of intangible capital per job was three times higher. These yawning gaps in 2019 were not as much as wide in 2000. Of course, there are also big differences between the Member States of the eurozone, so we must be careful not to draw premature conclusions about the European aggregate and the inadequacy of Europe's policies. Indeed, Germany comes close to the US level (82% in 2019); France stands out for its sustained intangible investment, but without distinguishing itself in terms of GDP growth; and Italy lags behind, with very low level of productivity gains and intangible investment, while Spain is in a process of catching up. Despite these intra-European differences, the capital factor seems to be the driving force behind the gap and divergence for all the countries observed. And by its very nature, the deficit in capital accumulation will also be the cause of divergence after 2019. If policy recommendations are to be defined, they must aim at increasing the investment in ICT and intangible assets to catch up with the level of capital available per job in the United States.