How AI will boost productivity
We are living in decisive moments: artificial intelligence is currently transforming everything—work, society and economy. AI will boost productivity, globally increasing GDP by 7% and most of all in the US market, Europe and especially Austria are on the verge of losing the competition with the USA and China.
Why is this happening, and why will productivity make the difference in the future? Here are the details.
America and silicon Valley ahead
In 1990, the U.S. accounted for about 40% of the GDP of the G7 advanced economies. Today, that share has risen to roughly 50%. On a per-capita basis, America’s economic output is now 40% higher than in Western Europe and Canada, and 60% higher than in Japan—widening gaps that were far smaller three decades ago. Even Mississippi, America’s poorest state, boasts average wages higher than the national averages in Britain, Canada, and Germany.
Structural advantages, including innovation, dynamic markets, and a highly productive workforce, have consistently kept the country ahead of its peers.
race for productivity
Productivity is the measure of how efficiently goods and services are produced, typically calculated as the output generated per unit of input, such as labor, capital, or time.
This year, the average American worker will generate about $171,000 in economic output compared to $120,000 in the euro area, $118,000 in Britain, and $96,000 in Japan (on purchasing-parity terms). That represents a 70% increase in U.S. labor productivity since 1990, far outpacing the gains elsewhere: 29% in Europe, 46% in Britain, and 25% in Japan.
Productivity by the Hour
A common critique is that American productivity is inflated because workers have fewer holidays than their counterparts abroad. But even on a per-hour basis, the gap is significant:
U.S. productivity has grown 73% since 1990, compared to 39% in the euro area, 55% in Britain, and 55% in Japan.
Another criticism is that productivity growth in America has slowed over the past two decades—a trend seen globally, driven by aging populations and a seemingly maturing tech landscape. Yet U.S. productivity growth remains stronger than most other economies.
WHAT ARE THE REASONS?
Investment in Capital
Non-residential investment has hovered around 17% of GDP since the mid-1990s, consistently higher than in major European economies. A significant portion of this investment goes into research and development (R&D), laying the groundwork for future growth. Except for Israel and South Korea, America leads the world in R&D spending at roughly 3.5% of GDP.Economic Dynamism
The churn rate among American companies—the share of firms created or dissolved annually—is nearly 20%, with about half representing new businesses. In Europe, it’s closer to 15%, reflecting the relative ease with which U.S. firms can close shop and startups can secure financing.Tech and Innovation Superiority
America’s edge lies in digital-intensive sectors like tech, finance, and professional services. These industries have been pivotal in driving productivity and economic growth.In Europe, we struggle with regulations, high taxes, expensive energy, and labor costs—most notably with a low adoption rate of AI. The result is evident here.
Artificial intelligence (AI) is expected to be the next major productivity driver. Some studies predict AI could boost global GDP by 7% within a decade.
Lessons for Europe
After World War II, the European Union experienced a remarkable period of catch-up growth, driven by rising productivity and a growing population. However, both of these key growth drivers are now slowing. EU labor productivity surged from just 22% of the U.S. level in 1945 to 95% by 1995. Since then, productivity growth in Europe has slowed more sharply than in the U.S., dropping back below 80% of the U.S. level.
By 2040, the EU’s working-age population is projected to shrink by nearly 2 million people annually. The ratio of workers to retirees is expected to decline from about 3:1 today to just 2:1.
The question is clear: Can Europe find a way to reignite its growth engines—or will it be forced to make painful trade-offs in the decades ahead?
Europe can learn from the American model by:
Increasing R&D investments and integrating universities with industry.
Reducing regulatory barriers for startups and scaling businesses.
Embracing a culture that rewards experimentation and tolerates failure.
Accelerating the use of Artificial Intelligence
How we oversleep AI
Artificial intelligence, both in research and especially in the founding of companies, is primarily taking place in the USA, whether we like it or not. For example, Austria invests only 8 million euros in artificial intelligence—the same amount as Uganda.
Since 2017, around 70% of foundational AI models have been developed in the United States, with just three US "hyperscalers" dominating over 65% of both the global and European cloud markets. In contrast, the largest European cloud provider holds only a 2% share of the EU market. Quantum computing is emerging as the next major innovation, yet five of the top ten global tech companies investing in this field are based in the US, and four are in China. None of them are headquartered in the EU.
Last week, the president of the Federation of Austrian Industries made it clear that we will face challenging times in the industrial sector in the coming years. That is a fact and won't be easily sugar-coated. Layoffs in the industry are already happening, but this doesn't have to be the case if we become aware that we might need to work differently—above all, more productively.
If we dare to step boldly into the unknown, if we let the spirit of innovation grow within us and absorb life with open arms, everything can find its proper place. I’m already looking forward to this!
Author: Werner Sattlegger, Founder and CEO Art of Life
Sources:
Events:
Executive Silicon Valley Learning Journey, 02. Juni - 06.Juni, 2024
Autor: Werner Sattlegger
Founder & CEO Art of Life
Experte für digitale Entwicklungsprozesse, wo er europäische mittelständische Familien- und Industrie-unternehmen von der Komfort- in die Lernzone bringt. Leidenschaftlich gerne verbindet er Menschen und Unternehmen, liebt die Unsicherheit und das Unbekannte, vor allem bewegt ihn die Lust am Gestalten und an Entwicklung.