The U.S. economy has had a strong decade, buoyed by rising wages and prosperity gains. How does America’s standard of living today compare with life in Germany and Switzerland? An overview in eight graphics.
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Mario Draghi is worrying European policymakers. In a high-profile report released last month, the former European Central Bank president argued that the EU is falling behind the U.S. economically. The document triggered a wave of uncertainty in Brussels and in the European capitals.
Many Europeans responded by rubbing their eyes in disbelief. They asked: The United States ahead? You must have a different America in mind. You’re talking about a country that has been under the spell of Donald Trump for years, and whose society is deeply divided. It is clear that Europeans often consider their continent to be the better place to live.
But who is right, Draghi or the others? A comparison of the United States with Germany – Europe’s most important economy – and with Switzerland provides an answer. The data clearly shows that America has in fact outperformed Europe economically over the past 10 years. But on the other side of the Atlantic, Europe still comes out ahead in a few areas.
Prosperity
The most important measure of a society’s prosperity is gross domestic product per capita. This indicates how much economic output is generated in a country per resident.
Over the past two decades, the United States has left Germany behind in terms of prosperity. Draghi is right about this. Following the financial crisis of 2008/09, per capita GDP in the United States grew significantly faster than in Germany. Many Europeans might not like to hear it, but this was the case even during Trump’s presidency from 2016 to 2020.
The gap widened particularly sharply after the COVID-19 crisis. The United States recovered quickly from the pandemic and returned to its former growth path. In Germany, on the other hand, prosperity is today even lower than before the pandemic. One reason for this is the war in Ukraine, which has undermined Germany economically. However, the country’s own homegrown weaknesses as a business location have also contributed. Per capita GDP in Germany is currently 16% lower than in the United States.
Switzerland has performed comparatively better. It is true that prosperity here also grew more slowly than in the U.S. after the global financial crisis. But the Swiss economy overcame the COVID-19 crisis just as quickly as the U.S. economy. Adjusted for purchasing power and inflation, per capita GDP in Switzerland is currently 13% higher than in the United States. This means that Switzerland retains a lead, even if it has shrunk over the last two decades.
Productivity
An economy can grow in three ways: Workers can work more hours, more capital can be used, or the economy can become more productive. As Nobel economics laureate Robert Solow has shown, productivity is the most important source of rising prosperity over the long term. Thanks to this factor, people can afford to buy more, or can work fewer hours to satisfy the same needs.
The U.S. has performed well in terms of overall economic productivity. To be sure, Germany caught up rapidly in the years after World War II. By the beginning of the 1990s, the German economy had even become as productive as that of the United States. Since then, however, Germany has fallen behind again. The Americans have regained a productivity lead.
Since World War II, overall economic productivity in Switzerland has always been higher than in the United States. But the Swiss advantage has also declined in recent decades. The U.S. is now almost on par in terms of productivity.
Innovation
Draghi is very concerned about Europe’s productivity. When presenting his report in Brussels, he identified the fact that Europe is falling behind in this area as the main reason why the continent is losing out to the U.S. in terms of prosperity. «We must bring innovation back to Europe,» he said.
There are various explanations as to why Europe has lacked innovative strength in recent decades. According to Draghi, new companies find it easier to establish themselves in the United States. He identifies several reasons for this, including more intensive cooperation between universities and the private sector, a less fragmented market, and better financing options for startups.
«In Europe, we have a static industrial structure that is dominated by the same companies and technologies as was the case decades ago,» Draghi said. In Europe, the three companies today making the largest investments in research and development are all car companies, he noted. In the U.S., the top three are technology companies.
America’s corporate world is remarkably strong and dynamic. According to Bloomberg data, 66 of the 100 most valuable companies in the world (by market capitalization) in 2023 were based in the United States – around a dozen more than in 2003. Germany has just two companies in the global top 100, three fewer than 20 years ago. Switzerland is represented by three companies, a decline of just one.
In addition, the top American companies are very young. Among the 10 most valuable firms in the U.S. are six companies – Apple, Nvidia, Alphabet, Amazon, Meta and Tesla – that were not in the global top 100 two decades ago, and which in some cases did not even exist at that time. By contrast, the European companies in the world’s most-valuable list are rather old. In Germany, they include SAP and Siemens, and in Switzerland, Nestlé, Roche and Novartis.
The dynamism of the U.S. market reflects the strengths of the American corporate world. These include the presence of a large and uniform domestic market, a broad capital market, and a strong venture capital scene, as well as soft factors such as the can-do and risk-taking mentality common among U.S. entrepreneurs.
Wages
From the point of view of everyday citizens, the critical question is whether economic growth will be felt at their level, or whether the owners of large corporations will be the only ones to benefit. Wage trends are therefore of key importance.
Average wages in the U.S. have risen sharply in recent years, with the trend beginning even during Trump’s presidency. This may be one important reason why the former president has a chance of winning the election in November. Although many Americans don’t personally approve of Trump, they remember that their own economic situation improved during his term in office.
Wages also jumped during the COVID-19 pandemic. Even low-income Americans have recently benefited from wage increases, primarily due to a widespread labor shortage in the country.
The surprising result: According to OECD data, average annual wages in the U.S., adjusted for purchasing power and inflation, are now almost as high as in Switzerland. Germany, on the other hand, has fallen behind, with average wages 19% lower than in the United States.
Business location quality
The U.S. economy is on the upswing. Companies have been investing heavily since the end of the COVID-19 pandemic. Gross fixed capital formation – that is, investment in buildings, machinery and other equipment – has recently risen sharply. However, this is partially due to the Biden administration’s industrial policy and its associated subsidies.
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The contrast with Europe is nevertheless striking. In Germany in particular, companies have been reluctant to invest since the pandemic. The pronounced weakness in investment reflects the lack of confidence in Germany as a business location. Switzerland is doing better in comparison.
Public debt
The U.S. government’s subsidy policy is driving short-term economic growth. However, it also has a downside: The U.S. national debt has risen sharply. It now amounts to more than 120% of GDP.
In comparison, Germany and Switzerland are frugal. In these countries, public debt represents 67% and 39% of GDP, respectively. Both countries are fundamentally committed to pursuing sound budgetary policies. In theory, this should be beneficial for economic development over the long term.
The enormous debt could become a risk for the American economy. Recently, for example, the Congressional Budget Office, a nonpartisan budget oversight authority, sounded the alarm. However, neither Donald Trump nor Kamala Harris have any plans to reduce the national debt. This is a cause for concern.
Inequality
The American economic boom has other dark sides as well. Inequality levels in the country have risen over the course of recent decades. Just how much remains a matter of controversy. But politically, the growing gap between rich and poor has become one of the most politically salient issues in the United States.
In contrast, income distributions in Germany and Switzerland have shown little change over the course of recent decades. Social equality continues to play a major role in both countries.
Life expectancy
Finally, what about the quality of life in the three countries? The most comprehensive measure of this factor is probably life expectancy. If people are doing well economically, are healthy and feel that they are secure within their social environment, this increases life expectancy.
The U.S. performs poorly in terms of life expectancy. The rate there has long been several years lower than in Germany or Switzerland. In addition, Americans’ life expectancy fell particularly sharply during the pandemic. In the U.S., significantly more people died from COVID-19 than was the case in Germany or Switzerland, measured as a share of the population.
There are various reasons for Americans’ comparatively low life expectancy. Poverty is widespread in the U.S., and many people do not have good access to health care. An above-average number of Americans also die early from violent crime, opioid abuse, traffic accidents or obesity.
Europe faces challenges
In the U.S., light and shadow therefore lie close together. The country has pulled ahead of Europe economically in recent years. Conversely, Europe continues to do better in terms of quality of life and social cohesion.
But Europe must be careful. In the long term, quality of life and social equality can be maintained only if the continent has a strong economy. Draghi was careful to emphasize this point as well. Europe still has many advantages, he said. But his concern is that prosperity in Europe is inexorably declining – and as a result, the continent is becoming less free to determine its own fate.
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