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
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.
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.
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.
Published: 9 September 2025
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.