February 13, 2015
It’s standard practice in public discussions to refer to the United States as being the richest country in the world. Even though this is repeated all the time, it’s worth asking if it is true.
In terms of having the largest economy in the world, it is no longer true. If we measure the size of economies by assigning the same price to all goods and services they produce (purchasing power parity GDP), China passed the United States last year. Of course China has more than four times the population as the United States, so on a per capita basis it is still much poorer.
If we take per capita GDP and ignore a few oil kingdoms and tiny tax havens, the United States still can claim to be the richest country in the world. Figure 1 shows per capita income, on a purchasing power parity basis, for several wealthy countries relative to per capita income in the United States.
As can be seen, per capita income is substantially higher in the United States than in the other six countries listed. Denmark comes in number two with a per capita GDP that is less than 83 percent of per capita GDP in the United States. Canada and Germany also manage to cross the 80 percent line. Per capita GDP in France is just under 71 percent of per capita GDP in the United States.
The U.S. lead looks less impressive if we look at output per hour of work. While the U.S. is still number one, Belgium is not far behind with a GDP per hour worked that is 92 percent of the U.S. level, as shown in Figure 2. France and Germany both come in at just under 90 percent. Canada comes in last by this measure with a GDP per hour worked that is just 75 percent as high as in the United States.
This indicates that much of the gap in per capita income is driven by people in the United States working more than people in other countries. This is not obviously good. Many people prefer to have more time to be with their friends and family or to pursue other activities rather than have higher incomes. To some extent this is clearly what is taking place in most European countries. These countries all require that workers have at least four weeks a year of paid vacation, paid family leave, and paid sick days. In France, a 35-hour work week is the norm. The fact that people choose to work less doesn’t mean they are poor.
Of course in many cases people are not choosing to work less, they can’t find work. But this is not obviously a bigger problem in these countries than in the United States. The employment rate (EPOP), the percentage of the population that is working, is higher in all of these countries than in the United States, with the exceptions of Belgium and France. And the U.S. lead over these countries is entirely the result of more work from younger and older workers. Both Belgium and France have substantial leads over the United States in EPOPs among prime age workers (ages 25-54).
There is another adjustment to the data that is worth considering. The United States devotes a considerably larger share of its GDP to health care than any other country in the world. This may be a bit misleading as a measure of output, since what we really care about is health, not expenditures on goods and services that are supposed to make us healthy.
For example, we may spend a great deal of money on drug and medical procedures to allow someone with a bad heart to survive and live a reasonably normal life. But what we really value is that the person is able to live a reasonably normal life, not the drugs and medical procedures. If other countries can achieve comparable health outcomes, while spending much less on health care, they are not worse off.
This suggests a slightly different GDP measure, GDP minus health care expenditures. The idea is that we might want to compare what we have left over after taking away what we had to spend on health care. We can then make this comparison and also try to compare the health status of people in the United States with people in other countries.
Figure 3 shows this comparison, using non-health care GDP per hour worked. The United States still comes out number one by this measure, but its lead is narrowed considerably. Belgium is second at just under 99 percent of the U.S. level. France and Germany are also not far behind with non-health care GDP per hour that is more than 95 percent of the U.S. level. Canada is last among this group with a ratio of just over 80 percent of the U.S. level.
While it would require a serious analysis to compare the health status of people in these countries with people in the United States, they do not obviously have worse health status. It is worth noting that they all enjoy longer life expectancies than do people in the United States.
These figures show that while the United States may still rank as number one in per capita GDP, when we adjust for hours worked and waste in the health care system, much of the U.S. lead disappears. (Even more of the lead would disappear if we adjusted for the five plus percent of GDP that the United States spends on the military and prisons, compared to roughly one percent everywhere else. We might also be interested in looking at medians – the situation of a person in the middle of the income distribution – rather than averages. This would also make the other countries look better relative to the United States.)
In short, when we try to more carefully pin down what it means to be the richest country in the world, it is not clear that the United States has very much of a claim.
