Though some may have doubted it, the US led the world in service sector productivity in the early 1990s. MGI discovered that variations in productivity across countries and sectors resulted from how managers responded to the intensity of competition they faced.
The main causes of productivity differences fall into one of three different groups: external factors, manager behavior, and production process factors. The behavior of managers, however, plays a pivotal role within the chain of causality.
Country and Sector Productivity
The US has the highest per capita income of the group, with West Germany, Japan, and France somewhat lower while the UK lags significantly behind.
Service Industry Productivity
Market conditions, and policies and regulations have a direct impact on management behavior. Taken together, the set of decisions and forces has a direct impact on labor productivity.
Deregulation of the airline industry is a worldwide phenomenon, leaving consumers to reap the benefits. In the US, where deregulation has progressed more quickly, labor productivity is greater than in European airlines.
Retail Banking Sector
The growing internationalization of capital markets has increased competitive pressures and deregulation in financial markets. On the level of the production process, the major causes in productivity gaps can be found in differences of labor organization, usage of automation and IT, and, in Germany's case, low scale.
Fast food restaurants have proved to be just as productive as full service ones. All the international differences in productivity exist at the full service level. In Europe, the commercial restaurant industry is smaller than in the US, and land, labor, and capital prices create higher barriers to entry.
General Merchandise Retailing Sector
Productivity in the general merchandise retailing sector is highest in the US and Germany. What differences there are reflect differences in national income and industry organization.
While the US enjoys higher capital productivity in the telecom sector, labor productivity differences are virtually non-existent between the US, Japan, and France.
There are many unexploited opportunities for productivity improvement in the service sector in the US and Europe. Realizing these gains could significantly narrow the real income per person gap between the US and European countries.