The impact of circular economy measures on labour productivity in EU industry

Abstract

The transition toward a circular economy has become a strategic priority for the European Union, particularly within the industrial sector, which is characterized by intensive resource consumption and high environmental impact. This study examines the impact of circular economy measures on labour productivity in EU industry using panel data for EU Member States covering the period 2016-2024. Labour productivity is measured as the ratio of industrial production to labour input, while circular economy performance is assessed using four indicators: circular material use rate, resource productivity, municipal waste recycling rate, and the eco-innovation index. A logarithmic panel regression model is applied to evaluate the relationship between circular economy indicators and industrial productivity. The results indicate that while municipal waste recycling positively affects labour productivity, resource productivity demonstrates a statistically non-significant relationship with industrial efficiency. In contrast, the eco-innovation index demonstrates a negative relationship with labour productivity, implying that the implementation of eco-innovative practices may generate short-term adjustment costs for firms. The findings highlight the complex economic effects of the circular economy transition and suggest that while certain circular economy measures enhance industrial productivity, others may require longer adaptation periods before generating measurable economic benefits. The study contributes to the growing literature on the relationship between sustainability and industrial performance in the European Union.