Synthesis – The widening transatlantic divide of labour productivity

Publication date: 17 December 2025
Author: Olivier Redoulès, Economist and Director of Studies at Rexecode
Publisher: European Employers’ Institute (EEI)

This synthesis brings together the findings of EEI’s three-part research series on the EU–US labour productivity gap, covering the period 1995–2024. It confirms that the divergence in labour productivity between the European Union and the United States is structural, broad-based across sectors, and accelerating, with a particularly sharp widening since 2019.

The report highlights the central role of weaker productivity growth in the EU’s largest economies, persistent underinvestment in ICT and intangible capital, and a growing gap at the digital frontier, especially in information and communication services. While internal convergence within the EU continues, it has been insufficient to offset the overall transatlantic divergence.

The synthesis concludes that reversing the productivity gap will require a shift towards higher-productivity growth, supported by large-scale investment, deeper market integration and a more innovation-friendly regulatory environment

EU labour productivity divergence accelerates post-2019, the third EEI study on productivity shows

Published: 2 December 2025

A new study by the European Employers’ Institute (EEI), conducted by Rexecode, finds that the EU–US labour productivity gap has widened significantly since 2019.

In 2024, EU hourly labour productivity reached $72/hour (PPP) compared with $116/hour in the United States – a 38% gap. Over 2019–2024, US productivity grew by +9.7%, while the EU recorded only +2.4%, deepening the gap by 6.7%.

The report highlights four main drivers: the EU’s employment-preservation approach during the pandemic, the US digital and AI investment boom, Europe’s industrial competitiveness shock (energy, regulation, China), and weaker private demand and investment.

“The message is clear: Europe must remove barriers to competitiveness and step up investment if it wants to close the gap,” said Delphine Rudelli, Chair of the Board of EEI “Productivity must return to the centre of the EU’s growth strategy.”

The study warns that the EU now faces both structural and cyclical disadvantages, while the US benefits from a strong technology-driven rebound.

About the study

This study is the third in a three-part series analysing the EU–US labour productivity gap. It follows the first report, “Understanding the EU–US Labour Productivity Gap: #1 – The Broad Perspective” (15 September 2025), and the second report, “Understanding the EU–US Labour Productivity Gap: #2 – A Granular Analysis (1995–2019)” (30 October 2025), which examined long-term sectoral and country-level dynamics. The third study, “Understanding the EU–US Labour Productivity Gap: #3 — The Amplified Divergence (2019–2024)”, focuses on the most recent period marked by the pandemic, energy crisis, and geopolitical tensions.

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 #3 – The amplified divergence (2019–2024)

Published: 2 December 2025

Author: Olivier Redoulès, Economist, Rexecode

This third study provides an updated assessment of the EU–US labour productivity gap over the period 2019–2024. The findings confirm that the EU’s productivity lag – already structural – has widened sharply in recent years. In 2024, EU hourly labour productivity averaged $72/hour (PPP) compared with $116/hour in the US, a 38% gap visible across all major sectors.

The divergence has accelerated since 2019: US labour productivity grew by +9.7%, while the EU increased by only +2.4%, resulting in a 6.7% deterioration in the EU/US ratio. This widening occurred in three phases: a sharp gap in 2020, temporary stabilisation in 2021 – 2022, and a renewed, broad-based lag in 2023–2024.

The study identifies four key drivers:

Overall, the 2019–2024 period marks a turning point: the EU’s productivity slowdown has become more pronounced, while the US has strengthened its performance, increasingly driven by high-tech sectors. Europe’s ability to reverse this trend will depend on its capacity to accelerate investment, improve competitiveness, foster innovation and support productivity-enhancing transformation across sectors and member states. Deeper market integration within the EU, in particular for services and capital, is a key lever.

Understanding the EU-US labour productivity gap #2 – A granular analysis

Published: 30 October 2025

Author: Olivier Redoulès, Economist and director of studies at Rexecode, Paris

This study provides a detailed analysis of the European Union’s (EU) labour productivity growth and its persistent gap with that of the United States (US). The analysis is set against a backdrop of a well-documented economic divergence between the EU and the US, a phenomenon highlighted in recent reports such as those by Draghi and Letta. This divergence has significant implications for Europe’s economic model and its ability to fund its social system and address collective challenges, from living standards and wages to social welfare and future investments.

Our previous study established a long-term decline in EU productivity relative to that of the US. The analysis also revealed that the EU’s productivity lag is a broad-based phenomenon affecting most major sectors and has accelerated since the COVID-19 pandemic.

This second study is motivated by the need for a more granular perspective, acknowledging the EU’s unique characteristics, notably the high degree of heterogeneity among its member states in terms of productivity levels and sectoral structures. This analysis confirms that the overall EU performance is a complex aggregate of disparate national and sectoral dynamics.

We found that while a partial convergence of productivity levels and hours-worked structures has occurred among EU countries since 1995, the productivity gap with the US has simultaneously widened.

The decline in the overall EU-US productivity ratio is almost entirely attributable to lower productivity growth in individual EU countries relative to the US, while shifts in hours worked between more and less productive EU countries had a beneficial effect.

A country-by-country breakdown reveals that the aggregate EU lag is primarily driven by the core EU economies (Germany, France, Italy, Spain, Belgium and the Netherlands), despite their significant positive contribution to the EU-27 productivity growth. These countries are the largest negative contributors to the overall EU-US productivity ratio, offsetting the positive contributions from new member states and Ireland.

Furthermore, a decomposition of productivity growth by factor reveals that the lag of the core EU countries is rooted in different sources. While Germany and France maintained a total factor productivity (TFP) growth rate similar to that of the US between 1995 and 2019, their lag is mostly due to insufficient investment, particularly in intangible capital and ICT. In contrast, countries like Italy and Spain experienced a significant lag in TFP itself, accounting for the majority of their productivity growth gap with the US. The lag in ICT investment and TFP is particularly acute in sectors like information and communication, where the US has a productivity level significantly higher than the EU at the end of the period.

Core EU economies drive the widening EU–US productivity gap, the second EEI study on productivity reveals

Published: 30 October 2025

The second study on productivity, commissioned by the European Employers’ Institute (EEI) and conducted by Rexecode (France) offers a detailed country- and sector-level analysis of the EU–US productivity gap over the 1995–2019 period. The findings show that the core EU economies – Germany, France, Italy, Spain, Belgium, and the Netherlands – are the main contributors to the EU’s slower productivity growth, despite their strong overall contribution to the European economy.

While newer member states in Central and Eastern Europe have achieved faster productivity growth than the United States, these gains have not been sufficient to offset the weaker performance of the larger economies, which account for most of the EU’s total value added. The study, therefore, concludes that internal convergence within the EU has not translated into greater competitiveness at the global level.

The report identifies underinvestment in innovation, digitalisation, and intangible assets as the key source of divergence. In Germany and France, productivity has kept pace with the US in efficiency terms (TFP), but limited investment in ICT and intangible capital has constrained progress. In contrast, Italy and Spain face deeper structural challenges due to slower TFP growth linked to weaker innovation diffusion and organisational efficiency. The gap is most pronounced in information and communication technologies, followed by professional services and manufacturing.

“This new piece of research highlights the importance of understanding Europe’s productivity dynamics in all their complexity. By combining rigorous analysis with a granular perspective, we believe at EEI that it offers valuable insights to guide policymakers and business leaders in shaping a more competitive and resilient European economy,” said 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