Are European workers turning into swots? Although the quality of the statistics is notoriously poor, productivity appears to have accelerated significantly. Productivity per worker in the business sector grew on average by 0.7 per cent a year from 1999 to 2005, according to official estimates. Morgan Stanley reckons this has speeded up to a 2 per cent annualised rate in the first half of this year. Short periods of data must be interpreted with caution, and it is difficult to disentangle cyclical and structural effects. Nevertheless, it is possible to identify some significant changes in productivity that may be sustainable for a number of years.

First, through investment in information technology, Europe appears to be narrowing the “innovation gap” with the US. Second, corporate restructuring has led to more efficient working practices. But the most important explanation may be developments in the labour market. Flexible, particularly part-time, employment has grown. Meanwhile, some full-time workers, such as those at Siemens, have agreed to work longer hours without full compensation. Both trends mean the rate of decline in aggregate hours worked appears to be falling.