EU Competitiveness: The Critical Role of Intangible Assets in EU Labour Productivity Growth

The European Union (EU) faces challenges such as an ageing population, migratory pressures, geopolitical vulnerabilities, and climate change, highlighting the need to enhance its ability to do more with less. This paper examines the drivers of EU labour productivity before and after the 2007 financial crisis, across goods and services sectors, tangible and intangible assets, and Information and Communication Technologies (ICT) and non-ICT tangibles. Using the EUKLEMS 2022 dataset for 14 EU countries and the UK from 1995-2019 and growth regression analysis, we find that Research & Innovation (R&I) is crucial for productivity growth. Labour productivity in the goods sector benefits most from non-ICT tangible assets, while in the service sector, it benefits more from the non-R&D intangibles software, training, and organisational capital. On the other hand, training and ICT tangibles became more important drivers of labor productivity growth after the economic crisis. We argue that the productivity gap between the EU and the United States is largely due to insufficient investment in non-R&D intangibles like software, training, and organizational capital.