If the share of employees in large and small enterprises in the European Union were equal to that in the United States, the EU could reduce approximately a third of its productivity gap with the US, Reuters reports. This is shown by an analysis from the European Central Bank (ECB), which warns that European companies are relatively often established, but significantly struggle to grow.
This is an assessment of the impact of company size, not a forecast that a single reform will eliminate a third of the difference. ECB analysts calculated what would happen if the EU had an American employment distribution by company size, with unchanged productivity for each group. According to the ECB, large European companies create approximately twice the added value per employee compared to micro-enterprises.
The difference in the structure of the economy is significant. In companies with fewer than ten employees, just over a fifth of employees in the EU work, approximately double the share compared to the US. Larger companies can more easily distribute development costs across multiple products and markets, invest in technology, and attract the capital needed for further expansion.
The ECB highlights the fragmentation of the European market as one of the barriers to growth. A company expanding from one member state to another may encounter different rules for company formation, management, and financing. For innovative companies, access to capital in later stages of growth, when they need larger investments, is an additional problem.
Therefore, some opt for legal structures in the US, particularly in the state of Delaware, which are already well known to international investors. The ECB’s analysis of this barrier tracks from company formation to capital raising and business expansion.
