The Yankees of Europe? A New View on Technology and Productivity in German Manufacturing in the Early Twentieth Century

Abstract

Labor productivity in German manufacturing lagged persistently behind the United States in the early twentieth century. Traditionally, this is attributed to dichotomous technology paths across the Atlantic. However, various industry case studies suggest rapid diffusion of U.S. technologies in Germany. We develop a novel decomposition framework based on Data Envelopment Analysis (DEA) to reconcile these findings. We conclude that by 1936 inefficient assimilation of modern production techniques—and not the use of different techniques—accounted for most of the U.S./German labor-productivity gap. Our findings call for a reappraisal of the drivers behind cross-country differences in manufacturing performance.

The Role of Capital and Productivity in Accounting for Income Differences Since 1913

“…Similarly, Timmer et al . (2016) find that efficiency differences, rather than applied techniques, explain labour productivity gaps between Germany and the USA in innovative industries (e.g. chemicals) at the beginning of the 20th century.…”

The Sources of Growth in a Technologically Progressive Economy: The United States, 1899–1941

“…noted the importance of the rapid expansion of secondary and college education as having a major indirect effect on TFP growth while David Mowery and Nathan Rosenberg (2000) stressed the increasing role of university-business knowledge transfers in a wide array of sectors. Marcel Timmer et al (2016) showed that American firms used new technology much more efficiently than their German counterparts who were sheltered by cartels and a less-competitive environment and Pieter Woltjer (2013) found similar results when comparing American with British firms.…”

Frontier Analysis

“…Another example of frontier analysis in economic history is the study by Timmer et al (2016), who use a DEA growth decomposition to show that the Frontier Analysis p.j.woltjer@rug.nl gap between German and US labour productivity in manufacturing in 1936 was primarily the result of the inefficient assimilation of modern production techniques in Germany. This finding contradicts traditional explanations that blame the labour productivity gap on the use of different technology and factor endowments.…”