The European economy is facing renewed scrutiny as concerns rise over its long-term performance. Influential analyses - including the 2024 Draghi and Letta Reports - warn of a growing economic divergence between Europe and the United States, amplified by global trade fragmentation and structural weaknesses in Europe’s export-dependent growth model.

Building on this debate, two studies by the European Employers Institute (EEI) analyse the EU–US labour productivity gap from a broad perspective and through the lens of core EU economies.

This new pair of studies offers an updated assessment of the labour productivity gap between the EU and the US. Over the past 25 years, hourly labour productivity has increased by an average of 1.8% per year in the United States, compared with 1% in the European Union. While both economies started from comparable levels in the mid-1990s, EU real labour productivity (in 2020 prices) is now 20% below that of the US. Across nearly all sectors - except personal and household services - productivity levels remain significantly higher in the US, both in nominal and purchasing power terms. While the first study provides a broad perspective on EU–US labour productivity trends, the second shows how productivity developments in core EU economies drive and reinforce the widening gap with the United States.

The persistence of this gap poses major challenges for Europe’s economic and social model. Slower productivity growth limits improvements in living standards, wage dynamics, and fiscal capacity, constraining Europe’s ability to respond effectively to collective priorities such as the green and digital transitions, defence, and demographic change.

Drawing on a comprehensive review of academic literature, the first study identifies eleven interrelated drivers explaining the EU’s lagging productivity:

• Lower investment and use of information and communication technologies (ICT);
• Fragmentation of the internal market;
• Weaker R&D intensity;
• Reduced business dynamism;
• Smaller average firm size;
• Limited access to finance;
• Bottlenecks in digital infrastructure;
• Labour market rigidities and social model differences;
• Administrative complexity and regulatory burden;
• Human capital and skills mismatch;
• Macroeconomic and demand-side factors.

Together, these findings underline the urgency of coordinated action to reinvigorate productivity growth as a foundation for Europe’s competitiveness, social cohesion, and long-term prosperity.

Download the report here: https://eei-institute.eu/wp-content/uploads/2025/09/Understanding-the-EU-US-labour-productivity-gap-1-%E2%80%93-The-broad-perspective.pdf and https://eei-institute.eu/publications/core-eu-economies-drive-the-widening-eu-us-productivity-gap-the-second-eei-study-on-productivity-reveals/