According to Nicolai Tangen, head of Norway’s sovereign wealth fund, Europe is less hard-working, less ambitious, more regulated, and more risk-averse than the US. Yet, the average European is also likely to live a healthier, happier, and longer life than the average American.
So why should Europe become more like the US?
Productivity
Well, if you are an investor like Nicolai Tangen, the answer is simple: the more productive your workers are, the more economic growth you will experience. This economic growth leads to stock market growth and greater returns for investors.
Over the past decade, as US worker productivity has, on average, outpaced that of EU workers, the US economy has been growing at a faster rate than the EU’s. This has led to a widening divergence of company valuations on both sides of the pond.
Consequently, Nicolai Tangen’s investments in US-listed securities have been more profitable than his investments in EU-listed securities, potentially why he is calling out the lower productivity of EU workers. It's not good for returns.
Although it’s debatable whether US workers are more productive than EU workers—as on a per-hour basis, some EU countries are more productive than the US—it is undeniable that the US and the EU have different attitudes towards work.
Social contract
While a generalisation, this phrase sums things up nicely:
"Europeans work to live, Americans live to work."
This is reflected in the social contract EU workers expect with employers:
- Work-life balance: Whereas the EU legally mandates working hours and vacations, the US only issues guidelines. The average EU worker has a better work-life balance than the average US worker; they work fewer hours a week and enjoy more paid holidays.
- Social security: In the EU, governments are expected to fund healthcare, unemployment, and the retirement of workers, whereas in the US, workers are expected to contract these services privately. In contrast to the EU, the US places more importance on individualism and self-reliance.
- Job security: Workers in the EU have many protections, while US workers can be fired without cause. There are strict laws about dismissal in the EU. Equally, while EU workers must provide notice before changing jobs, US workers can change employers more freely.
In the end, there are fundamental differences in EU and US attitudes towards work, which make it unlikely that the EU would try to emulate the US employment model in pursuit of growth. However, the EU does need to boost productivity somehow.
Overall, Europeans are satisfied with a system that generates less growth but is more equitable for society as a whole. While Europeans do need to focus on productivity, this should be enhanced by technology, for example, rather than loosening or eroding worker rights.
The EU should not exchange health for wealth.
Gregory Kennedy is a columnist for Investment Officer Luxembourg. His columns appear every other week. He also works as a business development manager at Finsoft.lu
