Economic Jet Lag

Despite its reputation for sluggishness, the European economy created 2 million more jobs than its American counterpart in the 13 years leading up to the Great Recession. Nevertheless, according to a recent report by the McKinsey Global Institute, per capita GDP—a key measure of living standards—is $35,000 in Europe, roughly $11,000 lower than it is in the United States.

One reason for the difference: the European penchant for leisure. Compared with Americans, continentals work five fewer weeks per year. A greater share of European women work part time rather than full time, compared with their U.S. counter-parts. And retirement comes earlier for Europeans. American men, for instance, retire at 65, on average; French men retire at about 59. Indeed, among older workers—those ages 55 to 64—only 50 percent of continentals are part of the labor force; that figure is nearly two thirds in the U.S.

Yet the main reason Europe lags behind is that its service sector—the principal source of recent job growth—has too many cumbersome regulations. In the Netherlands, for instance, municipalities can prevent retail outlets from selling TVs and furniture in the same stores. One major exception: Sweden, which liberalized zoning regulations during the 1990s. “They’ve achieved strong productivity growth,” says Martin Baily, a consultant on the report. “They’re a model.”