Europe’s Labor Laws Are Strangling Its Ability To Innovate, New Analysis Argues

Europe’s failure to produce a Tesla or a Waymo stems not from insufficient research spending or high taxes — problems California shares in abundance — but from labor laws that make it devastatingly expensive for companies to unwind failed bets. According to estimates, corporate restructuring costs the equivalent of 31 months of salary per employee in Germany, 38 in France, and 62 in Spain, compared to seven in the United States.

The downstream effects are visible across Europe’s flagship industries. When Audi closed its Brussels factory after cancelling the E-Tron SUV in 2024, severance ran to $718 million — over $235,000 per employee and more than the cost of writing off the plant’s physical assets. Volkswagen spent $50 billion on its electric vehicle lineup, failed to develop competitive software internally, and ultimately paid up to $5 billion for access to American startup Rivian’s technology.

Between 2012 and 2016, 79% of all startup acquisitions tracked by Crunchbase took place in the US. The essay points to Denmark, Austria and Switzerland as countries that have found a middle path — generous unemployment insurance and portable severance accounts that protect workers without penalizing employers for taking risks.