Catch Me If You Can: Productivity Dispersion and Convergence in European Industries

Wouter Simons

No 253, European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: This paper investigates within-industry dispersion in labour productivity in 19 European countries over 2005-2022, leveraging the CompNet database. It documents the existence of substantial gaps in productivity within EU industries, with leading firms exhibiting labour productivity two to five times higher than laggards. These gaps are evident across all countries and industries but particularly pronounced in Central and Eastern European (CEE) countries, and somewhat higher in services than in manufacturing industries. We find these labour productivity gaps between leaders and laggards to be relatively persistent over time. Yet, in CEE countries we observe a gradual narrowing of the productivity gap over the last decade, with the exception of the pandemic year 2020. The paper further explores factors that may affect productivity growth among laggards. We find that when lagging firms are further behind the frontier, their labour productivity growth tends to be stronger, pointing to the presence of a labour productivity catch-up effect. We find this catch-up effect to be unaffected by the digital or intangible intensity of the industry. Finally, in industries where lagging firms are relatively capital intensive, their productivity growth performance is stronger. Our findings help to shed light on within-industry productivity dynamics. They underscore the need for policies to strike a balance between fostering the innovative activity of frontier firms and improving the diffusion of these innovations throughout the firm population.

JEL-codes: D24 E22 L11 L25 O33 O47 O52 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2026-07
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Persistent link: https://EconPapers.repec.org/RePEc:euf:dispap:253

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