There is general agreement that the industrialized countries' labour productivity levels have converged since the last quarter of the nineteenth century, but this is largely based on trends in comparative GDP per worker for the whole economy, which many economic historians simply assume apply also to the manufacturing sector. In Discussion Paper No. 708, Research Fellow Stephen Broadberry finds that trends in comparative labour productivity in manufacturing since 1870 differed markedly from those for the whole economy. The US did not overtake the UK around 1890, since labour productivity in US manufacturing was already roughly double the UK level in 1870. The US lead remains close to this 2:1 level today, despite substantial swings in comparative overall labour productivity, particularly across the two World Wars.

The GDP data suggest that German labour productivity was less than half of the UK level in 1870 and did not catch up until the 1970s, but German labour productivity in manufacturing was already close to the UK level in the late nineteenth century and pulled substantially ahead after World War II. These results suggest that the overall convergence of labour productivity occurred not through the convergence in manufacturing but rather through trends in other sectors and the compositional effects of structural change. In particular, the expansion of high-productivity manufacturing, the settling of the prairies and improvements in transport accounted for much of the US rise to overall productivity leadership, while the reduction of employment in low-productivity agriculture contributed to Germany's catch-up. Differences in capital per worker cannot explain the persistent large labour productivity gap between the US and Europe, which also reflects technological choice. The emergence of a US system of production based on substituting cheap resources and machinery for skilled labour led to a large initial US productivity lead in certain sectors, while European firms continued to compete effectively in others on the basis of skilled labour. As mass production techniques were applied in more sectors, such productivity gaps became uniform.

Manufacturing and the Convergence Hypothesis: What the Long Run Data Show
Stephen N Broadberry

Discussion Paper No. 708, July 1992 (HR)