I was aware that rocket engines produce more thrust in space than in the atmoshpere, but it's seems to be more complicated than just the terminal velocity of the spent fuel from the engine. In the atmosphere, the force equals mass flow rate of spent fuel times change in velocity plus mass flow rate of the affected air times change in velocity. In space it's just the spent fuel mass flow rate. It turns out that more thrust and higher pressures occur in space where it's just the fuel mass flow. Another complicating factor is that the exhaust velocity is super sonic, and information about pressure can't travel faster than the speed of sound. I don't know how supersonic flow affects rocket engines in the atmoshpere.
In the case of the jet ski with exit nozzle in the water, the force = mass flow rate of water in turbine times change in velocity plus mass flow rate of affected water outside the engine times change in velocity. If the exit nozzle is in the air, then the realtively small momentum of the air can be ignored, and it's just the mass flow rate of water in the engine times change in velocity. The change in velocity is higher with the exit nozzle in the air, but the mass flow rate is greater with the nozzle in the water.
At relatively low speeds (smaller change in velocity), I would think that exit in the water would be better, but at higher speeds (larger change in velocity), then exit in the air would be better. The issue here is I don't know at what speed it's better to have the exit in the air.
In my previous post, I should have made it clear that I didn't know, but thought the exit in the water case might be better (at low speeds). After posting my response I attempted to edit it but the forum was having problems and I couldn't get back until now.