US to Extend Productivity Lead on Back of AI Boom, Say Economists

Early adoption drives gains

The United States is poised to widen its productivity advantage over Europe as artificial intelligence deployment accelerates across American enterprises, leading economists have warned. The divergence threatens to reshape the global economic landscape and deepen existing disparities between the world’s largest advanced economies.

Recent analysis suggests that American firms’ aggressive embrace of AI technologies is already translating into measurable productivity improvements, particularly in services sectors where generative AI tools have been rapidly integrated into daily operations. Output per worker in US professional services has risen 2.8 per cent year-on-year, outpacing European counterparts by a significant margin.

“We’re witnessing the early stages of what could be a transformative productivity surge in the United States,” said Dr. Jennifer Morrison, chief economist at the Peterson Institute for International Economics. “The question is whether Europe can close the implementation gap before it becomes structurally embedded.”

The productivity implications extend beyond immediate economic output. Economists argue that sustained productivity growth is essential for raising living standards, supporting wage growth, and maintaining fiscal sustainability as populations age. A widening transatlantic divide could have profound consequences for European competitiveness and prosperity over the coming decades.

Investment gap emerges

The foundations of America’s AI advantage rest on substantially higher capital investment. US companies are channelling approximately $150bn annually into AI infrastructure, including data centres, computing hardware, and software systems. This figure is roughly three times the equivalent European investment, according to data compiled by the International Monetary Fund.

Silicon Valley technology giants have led the charge, with Meta, Google, Microsoft, and Amazon collectively investing over $200bn in AI-related capital expenditure in 2024 alone. But the investment wave extends far beyond big tech. Financial services firms, healthcare providers, manufacturers, and retail chains are all deploying significant resources to integrate AI capabilities into their operations.

European enterprises, by contrast, have adopted a more cautious approach. Capital constraints, regulatory uncertainty, and a more fragmented market structure have combined to dampen investment appetites. The widening investment gap is particularly pronounced in the critical infrastructure layer, where access to cutting-edge computing resources increasingly determines competitive advantage.

“European companies are often working with one hand tied behind their backs,” explained Professor Hans Weber of the Frankfurt School of Finance. “They lack both the scale and the risk capital that characterises the American approach to transformative technologies.”

Energy considerations compound the challenge. Training and operating large AI models requires enormous computational resources and corresponding electricity consumption. The United States benefits from lower energy costs and greater grid capacity, providing an additional structural advantage that European policymakers are struggling to address.

Labour market effects

The productivity gains from AI deployment are most visible in sectors where cognitive tasks can be automated or augmented by machine learning systems. Legal document review, financial analysis, software development, customer service, and content creation have all seen significant efficiency improvements as AI tools handle routine elements of complex workflows.

American law firms report that AI-powered contract analysis tools have reduced document review times by 40 to 60 per cent, allowing junior lawyers to focus on higher-value advisory work. Investment banks are using AI systems to generate initial research reports and financial models, compressing timelines that previously required teams of analysts working over several days.

The effects are not uniformly positive. Some economists caution that the productivity benefits may be concentrated among high-skilled workers who can effectively leverage AI tools, potentially widening income inequality. Workers in routine cognitive roles face displacement risks if companies choose automation over augmentation.

However, historical precedent suggests that productivity-enhancing technologies ultimately expand economic opportunity rather than contract it. “Every major technological transition creates disruption,” noted Dr. Morrison. “But the long-run effects on employment and living standards have been overwhelmingly positive. The challenge is managing the transition period.”

European labour markets face similar pressures but with an added complication. Stronger employment protections and less flexible hiring practices may slow the reallocation of workers from declining roles to emerging opportunities, potentially limiting the productivity payoff from AI adoption even as displacement effects materialise.

Europe risks falling behind

The looming productivity divergence has triggered alarm among European policymakers and business leaders. The European Commission has identified AI adoption as a strategic priority, but translating policy ambition into practical results has proven difficult.

Regulatory frameworks present a particular challenge. The European Union’s AI Act, while intended to establish guardrails for responsible development, has created uncertainty about compliance requirements that some economists argue is deterring investment. American firms operate under a lighter-touch regulatory environment that permits faster experimentation and deployment.

“Europe has opted for a precautionary approach that prioritises risk mitigation,” said Professor Weber. “The United States has chosen to prioritise innovation and deal with problems as they emerge. Neither approach is inherently superior, but they produce very different outcomes in terms of investment and adoption rates.”

Regulatory barriers extend beyond AI-specific legislation. Data protection rules, sectoral regulations in healthcare and finance, and competition policy all influence companies’ ability to develop and deploy AI systems at scale. European firms frequently cite regulatory complexity as a major impediment to innovation.

Capital market structures also play a role. European venture capital markets remain smaller and more conservative than their American counterparts, limiting the availability of growth funding for AI startups. Public market investors in Europe have historically assigned lower valuations to technology companies, reducing the incentive for aggressive investment in emerging capabilities.

The productivity challenge carries geopolitical dimensions. Economic strength underpins military capability, diplomatic influence, and technological sovereignty. A widening productivity gap would gradually erode Europe’s relative position in the global order, potentially limiting the continent’s ability to shape international rules and norms.

Some economists argue that Europe retains structural advantages that could support a productivity resurgence. Strong public education systems, robust physical infrastructure, and sophisticated manufacturing capabilities provide a foundation for AI-enabled growth. The question is whether policymakers can create conditions that allow these advantages to be realised.

“The race is not over,” Dr. Morrison concluded. “But Europe needs to act decisively if it wants to remain competitive in an AI-driven global economy. That means addressing regulatory uncertainty, mobilising capital, and creating an environment where innovation can flourish.”