Mitt Romney says U.S. income is almost 50 percent higher than in Europe

Recently on the campaign trail, Republican presidential candidate Mitt Romney has used a talking point that favorably compares the United States to Europe.

On Dec. 28, 2011, Romney sat down for a a 90-minute conversation with the Quad-City Times editorial board in Iowa. During that session, Romney said that "our income, our GDP per capita, is almost 50 percent higher than (it is for) the average European."

Romney said this discrepancy demonstrates the strength of the United States’ system of free enterprise. "I don't want to see a president messing with that," he said, "because it will kill the spirit that makes us the powerhouse we are." (Suggesting that Obama-era America is a danger to free-market capitalism has been a theme for Romney, who has also claimed that "we're inches away from no longer having a free economy" -- a statement we rated Pants on Fire.)

A reader asked us to check out the comparison with Europe, so we did.

We turned to data from the Organization for Economic Cooperation and Development, a group that analyzes trends in advanced industrialized countries. One of the statistics the OECD calculates is gross domestic product per capita, measured in constant U.S. dollars and adjusted for the cost of goods in different nations.

By this measure, GDP per capita in the U.S. in 2010 was $41,976, compared to $27,533 for the European Union nations. If you compare the two, the U.S. does indeed have a 52 percent higher GDP per capita.

So Romney is on solid ground. But there are some caveats worth noting:

The European Union vs the Euro Zone. The 27-nation European Union includes a broad range of countries, from wealthy (United Kingdom, France, Sweden) to formerly communist and less-wealthy (Bulgaria, Latvia, Poland and Romania). A tighter group  -- and one that includes fewer of the less-wealthy nations, possibly making it a fairer comparison to the U.S. -- consists of the 17 countries that use the Euro.

As it happens, the OECD also calculated GDP per capita for the Euro Zone nations and found the average was $29,885. Using this comparison, the U.S. level is just under 44 percent higher. That’s not dramatically different, but it does fall short of 50 percent higher than the European level.

Who’s not included. Neither Euro Zone nor the European Union includes two of the richest countries in Europe -- Norway and Switzerland. GDP per capita was $46,908 in Norway -- a level that’s higher than the U.S. -- and $37,775 in Switzerland. If these two countries were added to the calculations, the U.S. advantage would shrink.

Holiday and vacation time. By statute, workers in Europe are promised much more vacation and holiday time than workers in the U.S. According to the OECD, workers in 17 European countries work fewer hours than workers in the U.S. Adding holiday and vacation time often means either lower levels of income accumulated from wages, or lower salaries.

"If a German gives up some pay to take four more weeks of vacation than an American, he is reported to be poorer, but that may not be the best way to see it," said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics, a think tank that specializes in international economics.

GDP per capita vs. median income. This is probably the biggest factor, because a relatively small number of very rich people can skew GDP per capita higher than one would get by comparing median income, which refers to the household that places halfway between the highest- and lowest-income households. Many economists would argue that a fairer measurement of countries would use median income.

"If the 300 richest people each see their income rise by an average of $1 billion a year, in per capita terms, this would raise our income by $1,000 a year," said Dean Baker, co-director of the liberal Center for Economic and Policy Research. "Not many people would feel better as a result of this gain."

Data on median incomes is harder to find, but we located some OECD data from the mid 2000s. By our calculation, median income in the United States was only about 33 percent higher than it was for the 22 European OECD members -- $26,990, compared to $20,264. So by this measure, the U.S. is still higher than Europe, but not as dramatically as Romney’s "almost 50 percent" figure would suggest.

Our ruling

Gross domestic product per capita may not offer the fairest comparison between the U.S. and Europe, mainly because it doesn’t take into account the European trade-off between income and leisure and because it effectively gives heavier weight to a small number of very rich Americans. In addition, there are a number of ways to define "Europe," some of which weaken the accuracy of Romney's statement.

Still, as Romney phrased it -- that the United States’ "GDP per capita is almost 50 percent higher than (it is for) the average European" -- his claim has merit. It’s actually slightly over 50 percent by that measure. On balance, we rate it Mostly True.

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Sara Jacobs

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