Productivity gap is due to regulation, research says

RED tape that deters new businesses is responsible for low levels of European productivity, according to research released today.

The costs of setting up a business result in uncompetitive markets, higher prices and less innovation, said Dr Markus Poschke, an economist from McGill University in Quebec.

Even small start up costs of around £5,000 have knock on effects “leading to large losses in terms of productivity and output,” the report said.

Some European countries have “miniscule” start up costs along the same levels as the US, Canada and New Zealand. While rates are low in Denmark, Norway and the UK, countries like Germany, France and Italy have significantly higher barriers to entry, Poschke said.

The research, published in the Economic Journal, found that up to one third of the productivity gap between Germany and the US could be due to entry costs.