Why are American workers more productive than British and German workers?
Jan 26, 1998
Recent research has shown that R&D investment, market size and graduate engineers are the key to high productivity in manufacturing. A highly skilled work force is less important.
Germany is thought to have some of the most highly trained and productive workers in the world. However, new data from the National Institute of Economic and Social Research (NIESR) in London show that workers in the US are even more productive and British workers come third.
"The main reason for taking an interest in productivity is its long term influence on living standards" says Geoff Mason, one of the authors of the report. Productivity is, however, difficult to quantify. Companies can be profitable with low worker productivity, but this is only achieved by moving to regions with low labour costs such as Asia.
American companies have some natural advantages over their European competitors. The US market is one of the largest in the world, and also the most competitive. This means that manufactured goods can have longer production runs, which reduces the unit cost per worker significantly.
According to the report US company workers are, on average, 33 percent more productive than the best German workers interviewed in the survey, and German workers are on average 23 percent more productive that their equivalents in the UK. The UK only leads Germany in two sectors: computers and electrical engineering. It will take British and German companies some 50 years to match the productivity of American companies if they continue to improve their productivity levels at the current rate.
Why are US companies so productive? To answer this question Mason and his colleague Mary O'Mahony measured a number of factors in all three countries - education standards of the work force,
research and development costs,
and management structures. To measure educational standards Mason and O'Mahony divided workers into three groupings: high level skills (degrees or equivalent),
intermediate vocational skills (trade apprenticeships or technicians) and low skills. They found that the average US worker is less skilled than an UK worker,
who in turn is not as skilled as an German worker. Only 53% of US employees needed qualified training for their position,
and only 38% received training while holding that job (
The high skill level of the German shop floor - obtained through the nation-wide apprenticeship scheme - has meant Germany has overtaken the UK as the most productive region in Europe. German shop floor workers can perform a wider range of tasks than their UK equivalents, and to a higher standard. However, UK labour costs are cheaper.
So how does the US achieve the highest productivity level with the least-skilled work force? The key seems to be the involvement of graduate engineers. These workers frequently recondition old equipment. They also spend a lot of time and money improving the performance of existing machinery. According to the report, equipment investments in the US were estimated at 64% higher than the UK (per physical capital per hour). Factories in the US also have more efficient layouts than those in the UK and Germany.
Although the limited skills of the shop floor means that it takes longer to set up production runs in the US, larger and hence more profitable production runs are possible due to the large home market for products. American companies have also invested more in computer controlled machinery.
British companies follow a similar pattern by using low skilled workers, but with less support from their engineering departments. This support factor is crucial: US productivity in some areas of high precision engineering is 60% higher than in the UK.
Research and Development
The authors claim that after taking into account physical capital, R&D, and labour productivity, it quickly becomes apparent that continued strong long term R&D investment in computers, motor vehicles, other transport equipment, and instrument engineering have had a statistically significant effect in creating the large productivity lead the US holds over the UK in these areas.
Another large difference between US and European companies is the level of R&D expenditure per worker - the figure in the UK is only 45% of that in the US companies. Mason and O'Mahony suggest that there are significant benefits related to R&D that do not show up in usual indicators. If the UK and Germany increased their investment on R&D, they argue, the return would be 5-7 times greater than the initial investment when capital gains by investors and other benefits are included.
The different levels of regulation and competition in the various countries also play a key role. Many economists have argued that the competitive environment in the US has increased productivity drastically. However, Germany is more productive than the UK even though its markets are not as competitive.
About the author
Paul Guinnessy is the Editor of PhysicsWeb.
G Mason and M O'Mahony 1997 Capital accumulation and manufacturing productivity performance: US - European comparisons NIESR Discussion Paper no 124