The European Employers’ Institute (EEI) has released its second study on the EU–US labour productivity gap, conducted by Rexecode (France), offering a detailed country- and sector-level analysis over the 1995–2019 period. The research provides fresh insight into why Europe’s productivity continues to lag behind that of the United States – and what this means for Europe’s competitiveness and long-term growth.
Core EU economies drive the productivity gap
The study shows that the EU’s slower productivity growth is primarily driven by its largest economies – Germany, France, Italy, Spain, Belgium and the Netherlands – despite their overall strength and contribution to European value added.
By contrast, newer EU Member States in Central and Eastern Europe recorded faster productivity growth than the US during the same period, yet their gains have not been sufficient to offset the weaker performance of the larger economies. As a result, internal convergence within the EU has not translated into greater global competitiveness.
Underinvestment in innovation and digitalisation
According to the findings, underinvestment in innovation, digitalisation, and intangible assets is the main source of divergence between the EU and the US.
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In Germany and France, total factor productivity (TFP) growth kept pace with the US, but limited investment in ICT and intangible capital constrained further progress.
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In Italy and Spain, deeper structural challenges – notably weaker innovation diffusion and organisational efficiency – resulted in slower TFP growth and a wider productivity gap.
The gap is particularly 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 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 European Employers’ Institute.
The widening gap over time
The report traces how the EU–US productivity gap evolved:
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Before 2007: a 1-percentage-point annual growth gap, mainly in manufacturing and services;
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2007–2019: both regions slowed, but the US pulled ahead in ICT;
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After 2019: the gap has widened further, especially in ICT and business services.
Policy relevance and European implications
The study underscores that while Europe’s internal convergence is a positive development, it has not translated into stronger overall performance versus global competitors. The findings echo concerns raised in the Draghi and Letta reports on Europe’s competitiveness and capacity to sustain its social model, improve living standards, and fund future investments.
For employers and policymakers, the message is clear: Europe must accelerate investment in innovation, digitalisation and skills to unlock productivity growth and strengthen its industrial and service base.
