Hmmm. Its a complicated topic. I work for an american company in belgium. Protections are ok and as its chemical sector we are covered by the chemical union’s agreement. Still, if they fire me, i get 2 month notice for 3 years worked and then its off to unemployment bureau. No one in Europe wants US style. Its harsh and unfair. You talk about the need for companies to fix their mistakes. What u dont mention is that C-suite who make those mistakes get cushy severances and can cash in stock options. So in US they get off easy for making multi billion dollar mistakes but the average joe shouldnt get a severance. Diess was an example you used. That idiot was told (we supply automotive, so i know people in WV) multiple times that WV doesnt do software, shouldnt do software. He went for it because he didnt want to be in the hock to Amazon or Meta. What happened? Bugs you mentioned. HE screwed up the company, HE was the reason (with his executive team of course) why WV wanted to close 3 factories to cut costs. Guess what severance Diess got? Why wouldnt average joe or heinrich working in Wolfsburg get something too?
Yes they do, speak for yourself. Europe is poor compared to the USA and getting worse. Some of us don't need these protections and don't want them. I live in a part of Europe with weak labor protections and it's one of the most successful parts. People here are happy and there's no movement for German/France style laws.
This business where people in random European countries feel free to speak for all of Europe has to stop too. It's culturally toxic. There is no such thing as a European citizen, Europe is not a country, it's not even a well defined term. You can't even enumerate the countries or languages that count as "European" without running into widespread disagreement. Europe itself is a fake concept. Only the nations are real.
> That idiot was told (we supply automotive, so i know people in WV) multiple times that WV doesnt do software, shouldnt do software.
Cars are full of software. This kind of "we can't do modern tech" attitude is EXACTLY what the article is about. Diess wasn't wrong to fight it, and it is damning of Germany and the German business culture that he was scrapped.
1. I didnt mean to say that Diess didnt want software in his cars. Diess was told he should use existing software not invent his own. To stick to what WV does well (cars) and buy off the shelf solutions from US for software. He didnt want to do that because data is money and he didnt want to “share” with americans. We saw how that ended. Educate yourself before speaking. What ceo wouldnt want software in a 2015 car? Jesus.
2. Of course i cant speak for all Europeans, i know that cause i am one. But voting doesnt lie, and its clear large majority of voters in most European countries want existing level of labour protection. So there is that. Take it with the voters not with me.
I think we are having a miscommunication, that's all :)
We both agree that Diess wanted software in his cars. My point is that given the nature of modern cars and how much software they contain, when his opponents said they shouldn't write software that was almost reducing themselves to being a component supplier. Cars are full of software, so a company that views itself as a car company must write lots of software.
The people who said Diess should just buy it in, as if it were any other kind of component, were in my view totally wrong - but wrong in the sense that if they were right it represents a huge and possibly terminal defeat of VW and as CEO it was reasonable for Diess to resist this outcome. Software isn't magic rocks you only find in North America, there was nothing beyond culture stopping VW obtaining competitive advantage through software.
In other words, the critique made in the article applied to Diess' opponents within VW, not Diess.
Sorry, but there is a reason why companies stick to their core competency. U dont just hire 200 programmers and write sophisticated software out of the blue. Everyone in the know expected and got exactly the result we got. 10 billion writedown followed by average Joe getting fired while Diess left with a multimillion severance and stock option package. And thats the point of the article. When C-suite makes stupid decisions, average people suffer while C-suite gets a bye bye pack and then goes on to next job. So why not have some job security at least?
I know, I've built developer teams and it's not easy.
But - so what? Being a car company IS hard and writing software IS a core competency of such firms, or must be if they are to survive. And hiring competent developers is not some dark magic held as a secret in Mordor. Plenty of companies manage it every day. Note that Elon Musk started as a software developer yet was able to hire rocket scientists, car designers and manufacturing specialists. There is no rule that says VW couldn't have done the reverse.
But this is the German attitude and it's a problem. It's giving up on modernity. If you can't do software you can't do the 21st century. Diess was right to try and learn.
Even if all of that is true (we can debate the details but i do agree generally), point of the original post i was commenting on was that European labour laws are overly harsh to companies. Well, Diess might have been right to try. But he fucking failed. And his failure cost people jobs while he got off with a stock option package + millions Euros exit package. Thats not fair and that was my original point.
No one is a strong statement, but at minimum, majority of voters dont want it. How do we know? Because we know who won elections, and on which platform.
While I'm sympathetic to the thesis here, there is a lot of overreach in this article that should be addressed. My PoV as a Californian living in France with 20 years experience in Silicon Valley and the Automotive industry:
Beyond the Elon Musk distortion field, Tesla is widely understood as not being a major innovator in practice. Their FSD is a mess, and well behind the leaders in that technology, for example. Their stock price is widely known to have no basis in reality. Musk's biggest innovation is to sell value in Tesla based on the stories he tells.
BYD and other Chinese automakers have been succeeding because they are fast followers, and excel at manufacturing. Not being a legacy automaker is helpful, and Volkswagen is similar here to Ford and GM, who have also experienced years of pain trying to integrate software.
The assertion about robotaxis is punchy, but its lack of context makes it meaningless. Autonomous driving is hard enough in the US with its wide streets and car-centric cities. Even so, remote human operators are often employed to cover up for deficient tech. Trying to imagine robotaxis operating at the same level, one should realize that the barrier is physical.
The focus here is on OEMs to make an example, however, European Tier 1 companies like Bosch, Continental and Valeo, are the ones supplying the tech to the OEMs and are innovators who are spending large amounts on R&D.
Your argument is that it should be easier to fire workers in the EU. While that may be an avenue to increasing innovation and risk taking, you are glossing over the situation in the US:
Personally, I've been laid off 3 times, twice from profitable companies who were only looking to improve their stock price and once in the early days of COVID, as that employer was thinking of its bottom line. In the US, 'shareholder's rights' come at the expense of the workers who make the actual products, and workers have virtually no protection. Aging workers are routinely trimmed off corporate rosters, despite the knowledge and experience they hold. AI is a convenient excuse for downsizing, since the cuts have been happening prior to evidence that AI can actually do the work. The bottom line is that massive layoffs are currently rife in the US, even as corporate profits remain high. The playing field is strongly titled towards capital.
While I agree there should be some reform in the EU, the US is not a model to follow, but is increasingly a cautionary tale.
The US is a cautionary tale ... for Europe. It sucks that you got laid off but if economic trajectories keep separating Europe is going to look more like Latin America or India. Americans will be driven around and served by robots whilst enjoying near full employment and huge power over the rest of the world, whilst everyone else sees their standard of living get stuck at a 1990s level.
Fact is that Americans find new work quite easily after layoffs. Europeans don't because companies are reluctant to hire. And this has got worse with time. We're seeing the problems now as executives learn - don't hire in Europe. European companies leave or get crushed, and American companies learn to not build out operations in Europe. It can't compete on labor costs with places like Mexico, can't compete on supply chain with China, and can't compete on innovation with America. So it has nothing, no edge.
Sorry, but your view is wrong. Americans today are having a very difficult time finding work after being laid off, and much of it is lower level gig work. Only a small subset of Americans will be served by robots, and being driven by a robot is a business gimmick, not a productivity marker. The standard of living in the US for the (shrinking) middle-class is largely flat or slightly lower than the 90s, especially for essentials, even though nominal wages are higher. The standard of living feels more squeezed today, as Americans work more to enjoy less. Europe has an educated and skilled workforce and high tech and manufacturing that can compete on quality, just not in a race to the bottom. I agree there should be wise reform to make it more competitive and growth-oriented, but I'm here to disabuse these romantic fantasies about the US.
European high tech can't compete with the US. That's why it doesn't have a tech sector. Being driven around by robots may feel like a gimmick to you, but soon enough it'll be common and another visible gap will have opened up between the two sides of the Atlantic (along with lack of air conditioning, smaller homes, etc).
There must be a substantial body of empirical literature to substantiate the claim that the main causal determinant of lack of innovation in Europe is labor law, right?
This is an interesting counterexample. I wonder how exactly the restrictivity of labour laws is measured? Perhaps it’s multidimensional? Typically these questions are answered in the primary literature so I was wondering whether the author would provide some sources to defend his main claim.
In general, the empirical evidence here is limited because the dominance of intangibles, where failure costs matter a lot, is a recent phenomenon, and because most data on restructuring is non-public. The OECD has a great index that relies almost exclusively on statutory/case law analysis.
The European Commission started a big effort recently to collect this data due to the paper I cite above. We should have some much more granular evidence coming out soon.
A first glance at sect. 3, causality, of the paper confirms that the empirical evidence is quite sparse indeed. I wonder whether this may be a case where other causal methods wrt the established tools econometrists use (here mostly a diff in diff) could decisively improve the analysis? Like causal discovery with DAGs and all that. But I have to read the paper in more depth still. Also why is the time series cut off exactly at 1995 on page 33? But this is just me oozing referee n. 2 energy
I have not encountered anyone who considers Sweden the European leader in innovation (whatever that means - I never hear any normal person use that phrase at all).
That's why I say Europe is a fake concept that serious people don't talk about because nobody even agrees on what the definition is. The reality is that according to this scoreboard the actual most innovative economy in Europe is Switzerland:
You think it's Sweden because Sweden excluded non-EU member states for its own comparison, as if they don't exist, but we're talking in this thread about European labor laws which as the WIP article points out, are much more relaxed in Switzerland than in the EU. So comparing only within EU is not really relevant.
(2) A ranking by the European Commission is a political artifact by bureaucrats who know nothing about innovation and so doesn't matter to anyone actually doing business. A big component of this index is how fast domestic internet connections are. I work in the tech industry and this topic simply never comes up when discussing research or innovation, but government officials can't get enough of it.
I didn't come here to argue which country is the most innovative in Europe or the EU. I came here to argue that the hypothesis "it is all about the labour laws" has some falsifying data.
OK, then I have to disagree that your statement falsifies the thesis. It doesn't seem to be true when checked.
1. Sweden doesn't have the most restrictive labour laws in Europe (however defined) according to the OECD dataset that measures strictness of employment protections:
In descending order from worst (strictest) is Czechia, apparently. Then the Netherlands, then Portugal, then Italy, then Belgium, Latvia, then France, then Sweden, then Greece. So Sweden is strict but there are many other EU countries that are stricter.
2. Sweden is not the most innovative country in Europe by any of the metrics you presented. By unicorns per capita Estonia is, at least according to this ranking:
Second is Luxembourg. And if you go by the EU Commission index you chose, Switzerland does better than Sweden.
So it's not the most innovative nor got the strictest labor laws. I just don't see how your claim invalidates the idea it's at least largely about labor laws.
You make a good point on incremental improvements. The US seems allergic to that kind of approach. If US carmakers sit comfortably producing ICE cars with very limited changes in technology, they may hold new car prices down, but they won't compete in foreign markets (particularly where fuel costs are higher). Buyers may save some money on their initial purchase, but they will pay more on fuel.
Tesla delivered 1.6M vehicles globally in 2025 and the trend is downward, VW alone and just in Europe - 1.5M. Tesla revenue was 25-30B USD, VW revenue - 360B EUR. Is innovation in the room with us?
Yes, rating Tesla's "worth" on market cap is misleading. Its underlying figures don't support that value. It is doubtful that anyone is betting on the company as a carmaker in the future, rather than on one man's claims for its future deviation into humanoid robots.
Funny.. there are a significant number of companies trying to push for novel products. And it is not labour laws that is limiting them (my domain is aerospace, so I see a lot of start-ups in this area)… maybe you could work some model data to prove your case? Availability of capital at the scale of US seems a more important influence factor. Even if the EU funds research at significant level, the amount of money available for market deployment and sustain the journey is not at the scale of US. Or, it seems, China. Funny.. why you focus on “why Europe does not have a Tesla” and not “why Europe does not have a BYD”… funny funny…
By the way, the VW example strikes more of a management lack of vision and understanding than the references of union discussions provided? If you’re a big company, “killing” the cow you’re milking to shift the paradigm is always challenging. In Germany or US… think Detroit. So, is it really the labour laws that are the major driver ?
By the way, somehow you’re proving my point? Tesla was a startup, so for startups labour laws are indifferent, ie, the issue is neutral in this US vs EU discussion ?
I don’t understand your point. And I don’t understand how labour laws are more relevant than availability of capital and market size which is the main argument of this piece.
I agree this is major problem, but it's a bit too cute to blame all of the EU's problems on it. First, the EU is just generally extremely restrictive, bureaucratic and combines high taxes with high subsidies, which tends to be good for large & entrenched companies with good PR and compliance departments serving mostly the domestic market, and bad for small, innovative companies simply making a good product with a worldwide customer base.
Second, it's of course more subjective, but it's also clearly cultural. Every time I bring this up, most people will reply something along the lines "But we have it good. What is there to complain?" They evidently think, as long as life is fine, we don't need to innovate. Others will do it for us, and we can be happy customers, with no hard work and no obligations.
There are plenty of people in Europe who understand these problems. But those people aren't leftists and so get censored heavily, additionally the moment you phrase things in terms of "Europe" you lose a lot of people who aren't comfortable with the idea of Europe as a concept. They think in terms of nation states. For example a good way to start a fight in this part of the world is to say: quick, don't hesitate, is Russia a European country? Or with slightly fewer sparks, quick, is Britain a part of Europe? People can't agree.
So those with the strongest grip on what's happening are out there, you just don't hear from them much outside of maybe X and Substack. And they don't talk about Europe, they talk about Britain, France, Germany etc.
Hours worked per worker per year (2023) - median income per day (2025, in 2021 international $) - median income per hour worked
France - 1487 hrs - 57,21$ - 14.04
Germany - 1335 hrs - 67,23$ - 18.38
USA - 1789 hrs - 70,00$ - 14.28
Since the main reason there are fewer hours worked/year in Germany or France than the USA is greater vacation time and more holidays, I venture to say your whole article should have been refocused on trying to understand how do the Germans have it so good.
I agree the evidence is overwhelming that the Swiss and Danish models are the ones that should be adopted by the rest of the continent, however, this is not a silver bullet. When you say Europe’s most flexible economies are its most innovative you forget that Sweden is much, much, more innovative than Denmark despite being less flexible in terms of its labour policies. As you know the capital pools in Sweden and Switzerland, as well as favourable tax policies on capital and corporations, are necessary causes for economic growth and innovation.
The good news is that Eastern Europe has learnt from the failures of large Western European countries and has adopted a much more market liberal approach. Hopefully the nimbler Western European countries will follow suit.
While I don't really disagree with the core premise, several of the examples here are a good point being made poorly.
Take the example of Nokia. They didn't lose the handset market because firing was too hard, it was a classic case of trying to execute a hardware-centric strategy in a market that had shifted to an operating system-centric one, a mistake plenty of American giants, such as IBM, have made.
It might also land a bit better if the central example of a successful American company outclassing its European competitors wasn't struggling to refresh their product line.
Tesla has taken huge bets, including now on Optimus. Hard not to see them as an enormously risk-loving company.
Software is uniquely hard if 'failure costs' are high, because total failures are more likely (many markets are winner-take-all), and it's more much skewed towards fixed costs, which means you have to invest more without knowing if it will 'work out'.
You can't grow a successful software company if firing is hard because the workers aren't at all fungible and a lot of companies struggle to hire effectively. To learn how to hire good programmers takes some trial and error, inevitably this means you will have to fire the ones who you thought were good at interview time but turned out not to be. If you can't do this easily you can't build an effective team.
That might be true in general, but it's rather besides the point of my specific criticism.
From first-hand accounts of people who worked at Nokia at the time, the issue wasn't deadwood employees sinking the company, it was that leadership didn't realise that hardware had become sufficently good that how easy it was to write code for the OS was becoming more important than power efficiency. Symbian was extremely power-efficient and notoriously difficult to write software for.
Like I said, I'm sympathetic to the argument being made here, which is all the more reason to point out that obviously tendentious interpretations of events undermine the argument being made, instead of strengthening it.
Perhaps but Nokia had more platforms than Symbian. They already knew it was a tech dead end with a team that couldn't/wouldn't modernize, hence their investment in the various Linux based efforts (Meego, Qt etc). Those had way less focus on power consumption with better APIs. But they just couldn't unify the company around a new platform effort, which confused developers and left them vulnerable to the much more organized and unified US firms.
OK, so why couldn't they clean up their platform initiatives? Because they didn't have the right executives and couldn't make the bold moves needed. And why couldn't they do that? Partly, because layoffs are so hard and expensive.
Love it. The failure costs (€610M to close Audi Brussels) are what happens when worker security gets embedded as firm-level "anti-synchronization costs" instead of socialized maintenance. Flexicurity separates the two.
It seems like a straightforward solution here would be to allow employers to opt out of such labor laws in exchange for contributing, say, a month's salary to an employee's savings account, which could be drawn upon during period of unemployment, when the balance exceeds a certain level, or upon retirement.
Another technocratic reform to encourage European dynamism could be adopting the (unfortunately now-former) Dutch 3-box system of taxation, particularly replacing investment income taxes on liquid assets with a wealth tax, to reduce the equity lock-in effect and (over)-taxation of risk investments with positive spillovers.
A friend who works in Germany told me yesterday that his company was restructuring and that he was going to lose his job. Then he told me he was going to get paid a full years salary AND was allowed to keep working at the company until this year-long period ends(and perhaps receiving no actual work). This seems like good news for him rather than bad.
There is 0 chance I’ll ever open a company in Europe — at least in Germany or France — if this is the case.
I’m sympathetic to your points but my anecdotal firsthand experience at a large org with a dysfunctional internal labour market is that things would actually be far, far better if the organisation could dismiss people (with pay! But with certainty of not having to settle some court case afterwards). And lots of employees go so far as to abuse that power, being functionally useless, while we churn through dynamic young people on 12 month contracts out of fear of offering a permanent position. It’s ridiculous and demoralising.
Moreover, the people we never hear about are those who are pushed OUT of employment entirely because of these strictures: often low skilled, immigrants, those with poor networks, the young, the elderly… European countries with high structural unemployment impose the costs first and foremost upon those who are frozen out of employment in the first place.
This must explain why German train station staff completely ignore anyone asking for help.
Hmmm. Its a complicated topic. I work for an american company in belgium. Protections are ok and as its chemical sector we are covered by the chemical union’s agreement. Still, if they fire me, i get 2 month notice for 3 years worked and then its off to unemployment bureau. No one in Europe wants US style. Its harsh and unfair. You talk about the need for companies to fix their mistakes. What u dont mention is that C-suite who make those mistakes get cushy severances and can cash in stock options. So in US they get off easy for making multi billion dollar mistakes but the average joe shouldnt get a severance. Diess was an example you used. That idiot was told (we supply automotive, so i know people in WV) multiple times that WV doesnt do software, shouldnt do software. He went for it because he didnt want to be in the hock to Amazon or Meta. What happened? Bugs you mentioned. HE screwed up the company, HE was the reason (with his executive team of course) why WV wanted to close 3 factories to cut costs. Guess what severance Diess got? Why wouldnt average joe or heinrich working in Wolfsburg get something too?
> No one in Europe wants US style.
Yes they do, speak for yourself. Europe is poor compared to the USA and getting worse. Some of us don't need these protections and don't want them. I live in a part of Europe with weak labor protections and it's one of the most successful parts. People here are happy and there's no movement for German/France style laws.
This business where people in random European countries feel free to speak for all of Europe has to stop too. It's culturally toxic. There is no such thing as a European citizen, Europe is not a country, it's not even a well defined term. You can't even enumerate the countries or languages that count as "European" without running into widespread disagreement. Europe itself is a fake concept. Only the nations are real.
> That idiot was told (we supply automotive, so i know people in WV) multiple times that WV doesnt do software, shouldnt do software.
Cars are full of software. This kind of "we can't do modern tech" attitude is EXACTLY what the article is about. Diess wasn't wrong to fight it, and it is damning of Germany and the German business culture that he was scrapped.
1. I didnt mean to say that Diess didnt want software in his cars. Diess was told he should use existing software not invent his own. To stick to what WV does well (cars) and buy off the shelf solutions from US for software. He didnt want to do that because data is money and he didnt want to “share” with americans. We saw how that ended. Educate yourself before speaking. What ceo wouldnt want software in a 2015 car? Jesus.
2. Of course i cant speak for all Europeans, i know that cause i am one. But voting doesnt lie, and its clear large majority of voters in most European countries want existing level of labour protection. So there is that. Take it with the voters not with me.
I think we are having a miscommunication, that's all :)
We both agree that Diess wanted software in his cars. My point is that given the nature of modern cars and how much software they contain, when his opponents said they shouldn't write software that was almost reducing themselves to being a component supplier. Cars are full of software, so a company that views itself as a car company must write lots of software.
The people who said Diess should just buy it in, as if it were any other kind of component, were in my view totally wrong - but wrong in the sense that if they were right it represents a huge and possibly terminal defeat of VW and as CEO it was reasonable for Diess to resist this outcome. Software isn't magic rocks you only find in North America, there was nothing beyond culture stopping VW obtaining competitive advantage through software.
In other words, the critique made in the article applied to Diess' opponents within VW, not Diess.
Sorry, but there is a reason why companies stick to their core competency. U dont just hire 200 programmers and write sophisticated software out of the blue. Everyone in the know expected and got exactly the result we got. 10 billion writedown followed by average Joe getting fired while Diess left with a multimillion severance and stock option package. And thats the point of the article. When C-suite makes stupid decisions, average people suffer while C-suite gets a bye bye pack and then goes on to next job. So why not have some job security at least?
I know, I've built developer teams and it's not easy.
But - so what? Being a car company IS hard and writing software IS a core competency of such firms, or must be if they are to survive. And hiring competent developers is not some dark magic held as a secret in Mordor. Plenty of companies manage it every day. Note that Elon Musk started as a software developer yet was able to hire rocket scientists, car designers and manufacturing specialists. There is no rule that says VW couldn't have done the reverse.
But this is the German attitude and it's a problem. It's giving up on modernity. If you can't do software you can't do the 21st century. Diess was right to try and learn.
Even if all of that is true (we can debate the details but i do agree generally), point of the original post i was commenting on was that European labour laws are overly harsh to companies. Well, Diess might have been right to try. But he fucking failed. And his failure cost people jobs while he got off with a stock option package + millions Euros exit package. Thats not fair and that was my original point.
Very credible story (no). Which European country exactly? How did you measure people's happiness?
You might have had time to include those crucial details if you weren’t trying to reply to every critical comment in the thread.
No one is a strong statement, but at minimum, majority of voters dont want it. How do we know? Because we know who won elections, and on which platform.
Terrific article; informative, comprehensive, and persuasive.
While I'm sympathetic to the thesis here, there is a lot of overreach in this article that should be addressed. My PoV as a Californian living in France with 20 years experience in Silicon Valley and the Automotive industry:
Beyond the Elon Musk distortion field, Tesla is widely understood as not being a major innovator in practice. Their FSD is a mess, and well behind the leaders in that technology, for example. Their stock price is widely known to have no basis in reality. Musk's biggest innovation is to sell value in Tesla based on the stories he tells.
BYD and other Chinese automakers have been succeeding because they are fast followers, and excel at manufacturing. Not being a legacy automaker is helpful, and Volkswagen is similar here to Ford and GM, who have also experienced years of pain trying to integrate software.
The assertion about robotaxis is punchy, but its lack of context makes it meaningless. Autonomous driving is hard enough in the US with its wide streets and car-centric cities. Even so, remote human operators are often employed to cover up for deficient tech. Trying to imagine robotaxis operating at the same level, one should realize that the barrier is physical.
The focus here is on OEMs to make an example, however, European Tier 1 companies like Bosch, Continental and Valeo, are the ones supplying the tech to the OEMs and are innovators who are spending large amounts on R&D.
Your argument is that it should be easier to fire workers in the EU. While that may be an avenue to increasing innovation and risk taking, you are glossing over the situation in the US:
Personally, I've been laid off 3 times, twice from profitable companies who were only looking to improve their stock price and once in the early days of COVID, as that employer was thinking of its bottom line. In the US, 'shareholder's rights' come at the expense of the workers who make the actual products, and workers have virtually no protection. Aging workers are routinely trimmed off corporate rosters, despite the knowledge and experience they hold. AI is a convenient excuse for downsizing, since the cuts have been happening prior to evidence that AI can actually do the work. The bottom line is that massive layoffs are currently rife in the US, even as corporate profits remain high. The playing field is strongly titled towards capital.
While I agree there should be some reform in the EU, the US is not a model to follow, but is increasingly a cautionary tale.
The US is a cautionary tale ... for Europe. It sucks that you got laid off but if economic trajectories keep separating Europe is going to look more like Latin America or India. Americans will be driven around and served by robots whilst enjoying near full employment and huge power over the rest of the world, whilst everyone else sees their standard of living get stuck at a 1990s level.
Fact is that Americans find new work quite easily after layoffs. Europeans don't because companies are reluctant to hire. And this has got worse with time. We're seeing the problems now as executives learn - don't hire in Europe. European companies leave or get crushed, and American companies learn to not build out operations in Europe. It can't compete on labor costs with places like Mexico, can't compete on supply chain with China, and can't compete on innovation with America. So it has nothing, no edge.
Sorry, but your view is wrong. Americans today are having a very difficult time finding work after being laid off, and much of it is lower level gig work. Only a small subset of Americans will be served by robots, and being driven by a robot is a business gimmick, not a productivity marker. The standard of living in the US for the (shrinking) middle-class is largely flat or slightly lower than the 90s, especially for essentials, even though nominal wages are higher. The standard of living feels more squeezed today, as Americans work more to enjoy less. Europe has an educated and skilled workforce and high tech and manufacturing that can compete on quality, just not in a race to the bottom. I agree there should be wise reform to make it more competitive and growth-oriented, but I'm here to disabuse these romantic fantasies about the US.
European high tech can't compete with the US. That's why it doesn't have a tech sector. Being driven around by robots may feel like a gimmick to you, but soon enough it'll be common and another visible gap will have opened up between the two sides of the Atlantic (along with lack of air conditioning, smaller homes, etc).
I feel like, as in all things, countries like the Danes have the right mix.
Worker protections, not job protections, to help companies stay nimble.
Highly redistributive taxation and social welfare to preserve social cohesion and relative equality.
There must be a substantial body of empirical literature to substantiate the claim that the main causal determinant of lack of innovation in Europe is labor law, right?
Sweden has the most restrictive labour laws in Europe but is also considered the Eoropean leader in Innovation with the most unicorns per capita.
This is an interesting counterexample. I wonder how exactly the restrictivity of labour laws is measured? Perhaps it’s multidimensional? Typically these questions are answered in the primary literature so I was wondering whether the author would provide some sources to defend his main claim.
In practice, Sweden has relatively low restructuring costs for large companies. Here is a decent but rough estimate: https://iep.unibocconi.eu/sites/default/files/media/attach/WP_Cost%20of%20Failure%2C%20Disruptive%20Innovation%20and%20Targeted%20Flexicurity_0.pdf
In general, the empirical evidence here is limited because the dominance of intangibles, where failure costs matter a lot, is a recent phenomenon, and because most data on restructuring is non-public. The OECD has a great index that relies almost exclusively on statutory/case law analysis.
The European Commission started a big effort recently to collect this data due to the paper I cite above. We should have some much more granular evidence coming out soon.
A first glance at sect. 3, causality, of the paper confirms that the empirical evidence is quite sparse indeed. I wonder whether this may be a case where other causal methods wrt the established tools econometrists use (here mostly a diff in diff) could decisively improve the analysis? Like causal discovery with DAGs and all that. But I have to read the paper in more depth still. Also why is the time series cut off exactly at 1995 on page 33? But this is just me oozing referee n. 2 energy
I have not encountered anyone who considers Sweden the European leader in innovation (whatever that means - I never hear any normal person use that phrase at all).
https://swedishchamber.nl/news/sweden-regains-its-position-as-the-most-innovative-member-state-at-the-european-innovation-scoreboard-2025/
Thanks for so nicely proving the points I'm making here and elsewhere in this thread!
(1) You're talking about the EU but saying Europe, which is a very common problem I called out here: https://www.worksinprogress.news/p/americans-are-ten-times-more-likely/comment/217212604
That's why I say Europe is a fake concept that serious people don't talk about because nobody even agrees on what the definition is. The reality is that according to this scoreboard the actual most innovative economy in Europe is Switzerland:
https://www.swissinfo.ch/eng/research-frontiers/switzerland-is-europes-most-innovative-country-eu-study-finds/89688218
You think it's Sweden because Sweden excluded non-EU member states for its own comparison, as if they don't exist, but we're talking in this thread about European labor laws which as the WIP article points out, are much more relaxed in Switzerland than in the EU. So comparing only within EU is not really relevant.
(2) A ranking by the European Commission is a political artifact by bureaucrats who know nothing about innovation and so doesn't matter to anyone actually doing business. A big component of this index is how fast domestic internet connections are. I work in the tech industry and this topic simply never comes up when discussing research or innovation, but government officials can't get enough of it.
I didn't come here to argue which country is the most innovative in Europe or the EU. I came here to argue that the hypothesis "it is all about the labour laws" has some falsifying data.
OK, then I have to disagree that your statement falsifies the thesis. It doesn't seem to be true when checked.
1. Sweden doesn't have the most restrictive labour laws in Europe (however defined) according to the OECD dataset that measures strictness of employment protections:
https://data-explorer.oecd.org/vis?df[ds]=DisseminateFinalDMZ&df[id]=DSD_EPL%40DF_EPL&df[ag]=OECD.ELS.JAI&dq=A..EPL_OV..VERSION4&pd=2000%2C&to[TIME_PERIOD]=false&vw=tb
In descending order from worst (strictest) is Czechia, apparently. Then the Netherlands, then Portugal, then Italy, then Belgium, Latvia, then France, then Sweden, then Greece. So Sweden is strict but there are many other EU countries that are stricter.
2. Sweden is not the most innovative country in Europe by any of the metrics you presented. By unicorns per capita Estonia is, at least according to this ranking:
https://www.e-resident.gov.ee/blog/posts/unicorns-per-capita-top-countries/
Second is Luxembourg. And if you go by the EU Commission index you chose, Switzerland does better than Sweden.
So it's not the most innovative nor got the strictest labor laws. I just don't see how your claim invalidates the idea it's at least largely about labor laws.
You make a good point on incremental improvements. The US seems allergic to that kind of approach. If US carmakers sit comfortably producing ICE cars with very limited changes in technology, they may hold new car prices down, but they won't compete in foreign markets (particularly where fuel costs are higher). Buyers may save some money on their initial purchase, but they will pay more on fuel.
Lots of US companies do incremental improvements. Look at Apple.
Tesla delivered 1.6M vehicles globally in 2025 and the trend is downward, VW alone and just in Europe - 1.5M. Tesla revenue was 25-30B USD, VW revenue - 360B EUR. Is innovation in the room with us?
Yes, rating Tesla's "worth" on market cap is misleading. Its underlying figures don't support that value. It is doubtful that anyone is betting on the company as a carmaker in the future, rather than on one man's claims for its future deviation into humanoid robots.
Funny.. there are a significant number of companies trying to push for novel products. And it is not labour laws that is limiting them (my domain is aerospace, so I see a lot of start-ups in this area)… maybe you could work some model data to prove your case? Availability of capital at the scale of US seems a more important influence factor. Even if the EU funds research at significant level, the amount of money available for market deployment and sustain the journey is not at the scale of US. Or, it seems, China. Funny.. why you focus on “why Europe does not have a Tesla” and not “why Europe does not have a BYD”… funny funny…
By the way, the VW example strikes more of a management lack of vision and understanding than the references of union discussions provided? If you’re a big company, “killing” the cow you’re milking to shift the paradigm is always challenging. In Germany or US… think Detroit. So, is it really the labour laws that are the major driver ?
By the way, somehow you’re proving my point? Tesla was a startup, so for startups labour laws are indifferent, ie, the issue is neutral in this US vs EU discussion ?
I don’t understand your point. And I don’t understand how labour laws are more relevant than availability of capital and market size which is the main argument of this piece.
> I see a lot of start-ups in this area
Startups work around the labor law problems by simply having the entire company go bankrupt rather than trying to lay people off.
I agree this is major problem, but it's a bit too cute to blame all of the EU's problems on it. First, the EU is just generally extremely restrictive, bureaucratic and combines high taxes with high subsidies, which tends to be good for large & entrenched companies with good PR and compliance departments serving mostly the domestic market, and bad for small, innovative companies simply making a good product with a worldwide customer base.
Second, it's of course more subjective, but it's also clearly cultural. Every time I bring this up, most people will reply something along the lines "But we have it good. What is there to complain?" They evidently think, as long as life is fine, we don't need to innovate. Others will do it for us, and we can be happy customers, with no hard work and no obligations.
There are plenty of people in Europe who understand these problems. But those people aren't leftists and so get censored heavily, additionally the moment you phrase things in terms of "Europe" you lose a lot of people who aren't comfortable with the idea of Europe as a concept. They think in terms of nation states. For example a good way to start a fight in this part of the world is to say: quick, don't hesitate, is Russia a European country? Or with slightly fewer sparks, quick, is Britain a part of Europe? People can't agree.
So those with the strongest grip on what's happening are out there, you just don't hear from them much outside of maybe X and Substack. And they don't talk about Europe, they talk about Britain, France, Germany etc.
Why then is the US motor industry performing so poorly?
From Our World In Data
Hours worked per worker per year (2023) - median income per day (2025, in 2021 international $) - median income per hour worked
France - 1487 hrs - 57,21$ - 14.04
Germany - 1335 hrs - 67,23$ - 18.38
USA - 1789 hrs - 70,00$ - 14.28
Since the main reason there are fewer hours worked/year in Germany or France than the USA is greater vacation time and more holidays, I venture to say your whole article should have been refocused on trying to understand how do the Germans have it so good.
I agree the evidence is overwhelming that the Swiss and Danish models are the ones that should be adopted by the rest of the continent, however, this is not a silver bullet. When you say Europe’s most flexible economies are its most innovative you forget that Sweden is much, much, more innovative than Denmark despite being less flexible in terms of its labour policies. As you know the capital pools in Sweden and Switzerland, as well as favourable tax policies on capital and corporations, are necessary causes for economic growth and innovation.
The good news is that Eastern Europe has learnt from the failures of large Western European countries and has adopted a much more market liberal approach. Hopefully the nimbler Western European countries will follow suit.
While I don't really disagree with the core premise, several of the examples here are a good point being made poorly.
Take the example of Nokia. They didn't lose the handset market because firing was too hard, it was a classic case of trying to execute a hardware-centric strategy in a market that had shifted to an operating system-centric one, a mistake plenty of American giants, such as IBM, have made.
It might also land a bit better if the central example of a successful American company outclassing its European competitors wasn't struggling to refresh their product line.
Tesla has taken huge bets, including now on Optimus. Hard not to see them as an enormously risk-loving company.
Software is uniquely hard if 'failure costs' are high, because total failures are more likely (many markets are winner-take-all), and it's more much skewed towards fixed costs, which means you have to invest more without knowing if it will 'work out'.
You can't grow a successful software company if firing is hard because the workers aren't at all fungible and a lot of companies struggle to hire effectively. To learn how to hire good programmers takes some trial and error, inevitably this means you will have to fire the ones who you thought were good at interview time but turned out not to be. If you can't do this easily you can't build an effective team.
That might be true in general, but it's rather besides the point of my specific criticism.
From first-hand accounts of people who worked at Nokia at the time, the issue wasn't deadwood employees sinking the company, it was that leadership didn't realise that hardware had become sufficently good that how easy it was to write code for the OS was becoming more important than power efficiency. Symbian was extremely power-efficient and notoriously difficult to write software for.
Like I said, I'm sympathetic to the argument being made here, which is all the more reason to point out that obviously tendentious interpretations of events undermine the argument being made, instead of strengthening it.
Perhaps but Nokia had more platforms than Symbian. They already knew it was a tech dead end with a team that couldn't/wouldn't modernize, hence their investment in the various Linux based efforts (Meego, Qt etc). Those had way less focus on power consumption with better APIs. But they just couldn't unify the company around a new platform effort, which confused developers and left them vulnerable to the much more organized and unified US firms.
OK, so why couldn't they clean up their platform initiatives? Because they didn't have the right executives and couldn't make the bold moves needed. And why couldn't they do that? Partly, because layoffs are so hard and expensive.
Love it. The failure costs (€610M to close Audi Brussels) are what happens when worker security gets embedded as firm-level "anti-synchronization costs" instead of socialized maintenance. Flexicurity separates the two.
https://www.symmetrybroken.com/maintaining-divergence/#the-missing-line-item-maintenance
It seems like a straightforward solution here would be to allow employers to opt out of such labor laws in exchange for contributing, say, a month's salary to an employee's savings account, which could be drawn upon during period of unemployment, when the balance exceeds a certain level, or upon retirement.
Another technocratic reform to encourage European dynamism could be adopting the (unfortunately now-former) Dutch 3-box system of taxation, particularly replacing investment income taxes on liquid assets with a wealth tax, to reduce the equity lock-in effect and (over)-taxation of risk investments with positive spillovers.
A friend who works in Germany told me yesterday that his company was restructuring and that he was going to lose his job. Then he told me he was going to get paid a full years salary AND was allowed to keep working at the company until this year-long period ends(and perhaps receiving no actual work). This seems like good news for him rather than bad.
There is 0 chance I’ll ever open a company in Europe — at least in Germany or France — if this is the case.
I’m sympathetic to your points but my anecdotal firsthand experience at a large org with a dysfunctional internal labour market is that things would actually be far, far better if the organisation could dismiss people (with pay! But with certainty of not having to settle some court case afterwards). And lots of employees go so far as to abuse that power, being functionally useless, while we churn through dynamic young people on 12 month contracts out of fear of offering a permanent position. It’s ridiculous and demoralising.
Moreover, the people we never hear about are those who are pushed OUT of employment entirely because of these strictures: often low skilled, immigrants, those with poor networks, the young, the elderly… European countries with high structural unemployment impose the costs first and foremost upon those who are frozen out of employment in the first place.