This implies that living standards in the euro area, in terms of real GDP per capita, continued to improve and developed more favourably than indicated by relative real GDP growth rates. At the same time, what is worrisome is that the gap in population growth has been even larger with regard to growth in the working age population, which manifests that Europe has a more acute problem of population ageing. IV. Economic growth in Europe: the role of institutions and values  IV.1. Market structures and economic institutions  Policy-makers in Europe have recognised the structural weaknesses of the European economy and have put together a range of reforms and policy measures seeking to remedy the deficiencies identified. The revised and refocused Lisbon strategy, which aims at making the EU “the most dynamic and competitive knowledge-based economy in the world” by 2010, outlines the main areas where policy action is needed (see European Community (2004) and Sapir et al. (2003)).
BIS Review 43/2007  3  reductions in working hours per person employed in the euro area can certainly help explain the widening of the gap in the level of output per capita between the euro area and the United States. Table 2 shows how the rate of change in labour utilisation can be decomposed into the rates of change of the four variables I referred to. The decomposition is useful because it helps to better understand the relative contribution of developments and factors affecting labour utilisation. Some of these factors can be influenced by policies and changes in economic institutions in a way that can contribute to improving the economy’s growth performance. Since the mid-1990s, labour utilisation in the euro area has increased, also relative to the United States. This has contributed positively to euro area growth and to narrowing the growth gap with the United States. However, despite this improvement, the level of labour utilisation – as opposed to its rate of change – in the euro area remains much lower than in the United States. This fact reflects a lower labour force participation rate, a higher unemployment rate, and lower average working hours per person employed in the euro area. The figures in Table 2 show how labour utilisation, and thus GDP growth, in the euro area have been supported by an increase in the share of the working age population that is employed (labour force participation has risen significantly and the unemployment rate has declined somewhat).