EEI study digs deep into why the EU’s labour productivity lags behind the US
Published: 15 September 2025
The overall economy-wide hourly labour productivity in the EU has grown by an average of 1% per year over the past 25 years, compared to 1,8% in the US.
An independent study commissioned by the European Employers’ Institute (EEI), and led by the research institute Rexecode, identifies 11 key factors behind Europe’s labour productivity lag, including business dynamism, human capital and skills mismatch, limited ICT investment, as well as the administrative complexity and regulatory burden.
Looking at the wider economy, the study shows that while all sectors are affected by this gap, the impact has been greatest in information and communication (ICT), business services, and industry.
The study also stresses what has already been highlighted in the Draghi report: the fragmentation of the European internal market and the regulatory hurdles hinder innovation and productivity gains of European companies. Additionally, investments in emerging digital technologies are too low in Europe.
“Europe’s productivity gap with the US goes beyond just technological lag or investment shortfalls – it’s also fuelled by the ever-present regulatory burden. This might not raise any eyebrows. The same regulatory complexity that businesses have been grappling with for decades continues to serve as a significant roadblock to innovation and growth. European companies face a maze of costly, inconsistent regulations across member states, draining resources that could otherwise boost productivity through ICT or R&D. The administrative burden has long been the “silent partner” in Europe’s productivity problem. This study arrives at the best time, when the EU needs to address its competitiveness and productivity issues,” commented Delphine Rudelli, Chair of the Board of the EEI.
The study also looks at how the EU–US productivity gap has evolved over the past decades: before 2007, there was a 1%-point growth gap mainly in manufacturing and services; between 2007 and 2019, both slowed, but the US pulled ahead in ICT; since 2019, the gap has widened further, especially in ICT and business services.
About the study
The study ‘Understanding the EU-US labour productivity gap: #1—The broad perspective’ updates the picture of the labour productivity gap between the US and the EU, highlighting why the gap exists, how it differs across countries, and the main factors behind it. It is the first in a series of three focusing on the comparative analysis of labour productivity in the EU and the US.
About the European Employers’ Institute
The European Employers Institute (EEI) is a research institute, founded by European and national employer organisations in March 2024. The EEI focuses on emerging employment and social policy topics at the European level, producing research studies, analyses and publications. It aims to ensure balanced representation on employment issues and strengthen social dialogue at the European level.
For more information:
Delphine Rudelli: info@eei-institute.eu / + 33 6 87 71 51 12
Understanding the EU-US labour productivity gap #1 – The broad perspective
Published: 15 September 2025 (Revised version: 26 November 2025)
Author: Olivier Redoulès, Economist and director of studies at Rexecode, Paris
The current economic landscape is marked by significant concerns regarding Europe’s economic performance. Recent influential reports, notably the Draghi Report and the Letta Report, both published in 2024, along with other analytical works, highlight a growing economic divergence between Europe and the United States (US). Furthermore, shifts in global trade dynamics, including past trade tensions and the ongoing fragmentation of global exchanges, fundamentally challenge Europe’s traditional export-dependent economic model. This study provides an updated assessment of the labour productivity gap between the United States and the European Union (EU), along with an overview of the explanatory factors identified by economic research.
Overall, economy-wide hourly labour productivity has grown by an average of 1.7% per year in the US over the past 25 years, compared to 1% in the EU. Starting from a lower level in the mid-1990s (a -27% gap), EU real labour productivity in 2020 prices is 38 % below that of the US in 2024. Across all economic sectors (with the exception of non-market services), US productivity is significantly higher than in the EU, both in nominal terms and in PPP dollars, i.e., after adjusting for relative prices.
The persistence of this productivity lag poses major challenges for the European economy and society, given the key role of labour productivity growth for the progression of national income.
This weakness impacts critical areas such as living standards, wage growth, the financing of the social model, and Europe’s capacity to effectively address collective challenges (e.g., climate change, defence, digitalisation, demographic shifts).
Our review of academic literature identifies eleven complementary explanatory factors for the decline in EU productivity relative to the US: differences in Information and communications technology (ICT) Investment and use, fragmentation of the European internal market, lower R&D investment, weaker business dynamism, firm size distribution, limited access to financing, digital infrastructure and bottlenecks, differences in labour market functioning and social model, administrative complexity and regulatory burden, human capital and skills mismatch, and macroeconomic policies and demand-side factors.
Can the EU restrict subcontracting? A legal perspective
Published: 9 September 2025
Can subcontracting practices be restricted?
Author: Erik Sinander, Associate Professor at Stockholm University
This legal study examines recent proposed restrictions to subcontracting in EU labour law. In the legal debate, it has, for example, been proposed that subcontracting should be limited to a certain number of tiers and that some sort of direct liability across the entire subcontracting chain should be introduced. Focusing specifically on these two restrictions, this study concludes that restricting subcontracting comes with several legal complexities.
Restricting subcontracting comes with several legal complexities and unintended consequences.
First, as subcontracting generally refers to the practice where someone delegates contractual obligations to a third party, subcontracting is such a common practice in the modern economy that it is hard to pinpoint for restriction purposes without unintended effects for business in general. In this part, this legal study concludes that any measure needs to be carefully defined and drafted to avoid negative legal side effects.
Additionally, the legal study concludes that subcontracting is an aspect of the freedom of contract, which is protected as a part of the right to conduct a business under Article 16 of the EU Charter, as well as under the free movement of services and the freedom of establishment. Here, it is noted that subcontracting has been recognised as a possibility for smaller companies to compete. Consequently, restrictions on the use of subcontracting will undermine competition, as restrictions will gain large companies that do not need to subcontract services. That subcontracting is protected under EU primary law means that restrictions cannot be done without carefully balancing their effects on the protected rights.
Mapping existing restrictions and measures that address labour law issues in subcontracting chains, the study finds that EU law takes no consistent approach to restrictions. Among the existing measures that, in one way or another, address labour law issues in subcontracting chains, direct liability, equal treatment of employees, as well as reporting and transparency obligations can be found. Importantly, the study finds that limiting subcontracting to a certain level of tiers is unprecedented in EU law. It is also noted that such national restrictions to subcontracting have repeatedly been found to be inconsistent with EU law.
EEI legal study explores risks of restricting subcontracting and its impact on business freedom in the EU
Published: 3 September 2025
A new independent legal study, commissioned by the European Employers’ Institute (EEI) and led by the Associate Professor at Stockholm University, Erik Sinander, looks into the legal implications of restricting subcontracting following the call of the European Parliament “to introduce an EU general legal framework limiting subcontracting and ensuring joint and several liability through the subcontracting chain”.
The study warns of the legal complexity and EU fragmentation that could result from introducing restrictions on subcontracting and potentially destabilising a wide array of industries from construction and manufacturing to logistics and services.
Subcontracting is a common and essential practice in modern economies, where businesses delegate contractual obligations to third parties. Because subcontracting enables, in particular, smaller companies to compete effectively, restrictions limiting subcontracting tiers risk undermining competition by disproportionately benefiting larger companies that are able to perform tasks internally.
No existing EU legislation currently limits subcontracting tiers, making such proposals unprecedented and legally challenging.
The study points to significant definitional challenges surrounding subcontracting, including the difficulty of clearly distinguishing between subcontracted services and purchased products, as well as defining the scope of subcontracting chains within supply and value chains.
It also warns of potential negative impacts on sustainability and regional economies. As a matter of fact, restricting subcontracting could force companies to replace repair or refurbishment services with new product purchases, increasing waste and reducing local employment opportunities.
As Brussels continues to debate a possible legislative instrument on subcontracting, this timely study underscores the risks of implementing overly restrictive measures that could inadvertently stifle business growth and job creation.
“This legal analysis provides a crucial perspective on the challenges of further regulating subcontracting. The risks to the well-being of workers where these exist are a critical issue that must be addressed, but the solution lies not in blanket restrictions on subcontracting. Such measures could have serious consequences for businesses, especially small ones, and therefore for the jobs that their economic growth helps to create. Existing labour protections should be enforced more effectively, and where necessary, the role of labour authorities must be strengthened to ensure compliance. We must focus on a balanced approach that protects workers’ rights while maintaining the competitiveness of the EU’s internal market”, commented Delphine Rudelli, Chair of the Board of the EEI.
About the European Employers’ Institute
The European Employers Institute (EEI) is a research institute, founded by European and national employer organisations in March 2024. The EEI focuses on emerging employment and social policy topics at the European level, producing research studies, analyses and publications. It aims to ensure balanced representation on employment issues and strengthen social dialogue at the European level.
For more information:
Delphine Rudelli: info@eei-institute.eu / + 33 6 87 71 51 12