In their 2008 paper “The Role of Labor Market Changes in the Slowdown of European Productivity Growth”, Ian Dew-Becker and Robert J. Gordon discuss the change in the rates of labor market productivity between Europe and the United States. Since WWII labor productivity in Europe was faster than in the United States, but since 1995 that trend has reversed. What caused this shift?
Dew-Becker and Gordon show that part of the slowdown in Europe is because of fuller employment—European employment has long been vastly lower than in the US—but this does not account for the entirety of the slowdown, partly because much of the increase in employment is from low-skilled immigrants and women who’ve entered the work force. Many European countries have sought to increase employment especially among women and enacted policies that helped achieve this. The effect is of diminishing marginal returns—and those workers employed on the margin tend to have be the least skilled.