Determinants of labor productivity dynamics powering workforce potential across EU countries

Purpose The aim of this study is to analyze the determinants of labor productivity growth and employability in the context of changes in the demand structure of the 27 European Union (EU) Member States over the period 2010–2023. The research highlights the contribution of three factors that are representative in the current context, namely: information and communication technology (ICT), the circular economy and tertiary (higher) education. Design/methodology/approach The research methodology uses panel data and the fixed effects model, selected based on the Hausman test, which indicates dependence of the variables across countries. The coefficients and standard errors were determined using the Driscoll–Kraay method, which combines fixed effects regression and ordinary least squares to obtain stable estimates. Findings Our findings demonstrate that employed ICT specialists and people engaged in circular economy sectors significantly contribute to increasing labor productivity. Moreover, the negative effect of the Gini index on productivity in high-level gross domestic product (GDP) countries reported in our models suggests that high levels of inequality act as a drag on overall economic performance. In order to reduce inequality, key measures include progressive taxation and wealth redistribution, investment in higher education for digital and green skills and stronger social safety nets to support disadvantaged groups. Originality/value This study contributes to the existing literature by analyzing factors influencing labor productivity at the EU level using a recent dataset and by focusing on employed ICT specialists, unlike most research which examines ICT investment, development indices or ICT goods exports.