Filenews 26 October 2025 - by Lena Panagiotou
To put an end to stagnation, the EU needs to create the conditions that will ensure a simultaneous increase in productivity and an increase in labour participation
The European Union (EU) economy is increasingly lagging behind its main global competitors.
Over the past three decades, the gap in GDP per capita between the EU and the US has widened significantly, from 68% of the US level in 1995 to just 50% in 2024. In this time, other countries have made significant progress.
For instance, China's GDP per capita grew from just 2.1% of the U.S. level in 1995 to 15.5% in 2024, highlighting a dramatic shift in global economic dynamics.
This stagnation in the EU is due to low productivity caused by a number of factors, which hinder investment and marketable innovation: high energy costs, over-regulation, lack of skills and labour, insufficient access to capital, etc.
Many of Europe's economic weaknesses are not new. The Draghi report, which examines the evolution since the early 2000s, shows a continuous deterioration. Labour productivity in Europe was about the same as in the US in 1995, but the EU faced lower labour participation.
In the following years, Europe managed to increase labour participation, but there was a setback in productivity growth. To end stagnation, the EU needs to create the conditions that will ensure a simultaneous increase in productivity and an increase in labour participation.
Diminishing attractiveness
There is also growing concern about the EU's declining attractiveness as an investment destination, with the regulatory environment being identified as the main challenge for investment in the EU.
Measures should therefore be promoted to:
– The creation of favourable conditions for investment and job creation by reducing regulatory burdens.
– Ensuring easier access to finance, especially for SMEs.
– The elimination of barriers within the Single Market.
– Improving the effectiveness of public spending by making EU programmes more accessible and transparent and reallocating resources from less effective initiatives to those with the greatest impact.
Pressing Challenges
The most pressing challenges of the labour market are summarized in the following chapters:
– Addressing labour and skills shortages in an ageing demographic:
The EU's working-age population decreased by 3.5 million between 2015 and 2020. It is expected to shrink further in the coming years and decades, with the loss of an additional 35 million people by 2050.
Demographic barriers are particularly acute in Eastern Europe, where the working-age population has shrunk by 12% since 2002. Businesses face recruitment difficulties that hinder their growth. At the same time, unemployment and a relatively high rate of inactivity persist across the EU.
In addition, when shortages decrease and return to pre-Covid levels, as is the case with industry, it is for the wrong reasons: a decrease in activity rather than an increase in the available workforce. Re-skilling, upskilling, and reducing labour market slack are crucial measures to address labour and skills shortages, but legal migration is also part of the response.
All these aspects are particularly important for Small and Medium-sized Enterprises (SMEs), which need to be adequately supported to face the challenges of the labour market.
– Increase the participation rate of adults in training:
A worrying trend is the low participation of adults in learning (around 40% of 25-64 year olds in 2022), which is still well below the EU target of at least 60% by 2030.
In addition, the digital transformation increases the importance of addressing the skills gap and its impact on Europe's innovation capacity. The new important area of basic skills is digital skills which, together with STEM skills, are the basis for further professional development/upskilling.
Skills are crucial, not only for an effective transition from job to job, but also for innovation. Innovation, in turn, is critical to improving productivity, which in turn enhances the ability to create good quality jobs.
There is a shared responsibility of employers, workers and public authorities for training. The social partners must be involved in education and training policy to ensure that the form and content of training equip individuals with the relevant skills.
– Restructuring and structural changes in businesses have been accelerated by the twin green and digital transitions:
New technologies and materials are transforming production models, work processes, occupations and tasks performed. They change the skill requirements. According to European surveys, the sectors with the highest recorded number of jobs lost in 2024 are manufacturing, transport/storage and retail.
The road to new opportunities
These changes also pave the way for new opportunities.
– Employees experiencing changes in their skills profile must have access to effective and timely upskilling and retraining.
– Employers must also be accompanied in these changes, for example through access to EU funds, to finance the necessary vocational training/reskilling to address the need for upskilling and reskilling.
– Employers should also be able to benefit from available EU funds intended to support Member States, which have the primary responsibility to ensure accessibility and fund continuing education and training systems to address the need for upskilling and reskilling.
To address the challenges at national level, the Employers' and Industrialists' Federation (OEB) is promoting at all levels and among others, the continuation of reforms in the field of active labour market policies and job incentives, supporting labour mobility, both within the EU and from third countries, increasing labour market participation of all those who can work and continuing reforms in the field of labour market including supporting employers in their training efforts.
* Assistant General Manager (OEB)
