Can Europe Stay Productive? Macroeconomic and Demographic Pressures on Labor Productivity

This research examines the impact of demographic shift and broader economic factors on labor efficiency in 23 European Union countries (EU-23) from 2005 to 2022. The analysis employs dynamic panel techniques, including Generalized Method of Moments (GMM), Random Effects (RE), and Autoregressive Distributed Lag (ARDL) models, to investigate the influences of population aging, unemployment, inflation, GDP per capita, research and development (R&D), life expectancy, and capital formation on productivity dynamics. Unit root and cointegration tests verify the existence of long-run interconnections between variables with varying levels of integration. Research indicates that inflation has a significant detrimental effect on productivity, whereas GDP per capita and R&D investing consistently enhance efficiency and output per worker. Life expectancy appears to have a negative impact, influenced by demographic pressures, whereas unemployment shows an unusual positive relationship with productivity, which is possibly due to structural changes in the labor market and the adoption of new technologies. The ARDL error-correction model confirms long-run convergence, with a persistence of productivity determinants observed over time. Research suggests that Europe's productivity growth relies on macroeconomic stability, innovation, the accumulation of human capital, and demographic adaptation.