## Real GDP per Person Employed of Switzerland vs. U.S. and Europe

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### Overview and key conclusions
- Switzerland’s labor productivity is generally higher than that in other advanced economy peers, with significant variation across sectors and firm sizes.
- Multinational enterprises (MNEs) drive average productivity upwards, while small firms and the services sector lag.
- Policy goals identified: support firm scale-up, address labor shortages, and enhance competition to sustain labor productivity growth.

### Performance versus peers
- Switzerland ranks at or near the top among OECD countries in labor productivity, supported by strong R&D, innovation, infrastructure, education, and an open and competitive business environment.
- Switzerland is highly integrated into global value chains and specializes in high-value-added activities, hosting many large MNEs.
- Swiss real GDP per capita:
  - Has recently increased relative to European peers.
  - Has declined compared to the U.S.; the decline versus the U.S. reflected diverging trends of working hours and Switzerland's lagging labor productivity growth relative to the U.S. since the mid-1990s. This declining trend stabilized during the 2010s but picked up after the pandemic.

### Firm-level data and scope
- Data sources and coverage:
  - Orbis dataset covers 459,884 firms in Switzerland; only 1,129 firms provide relatively complete financial information; the rest report only sales and employment data.
  - Compustat sample includes 282 Swiss firms.
  - Financial and insurance companies are excluded from both datasets.

### Sectoral productivity patterns
- High-tech vs low-tech:
  - Swiss labor productivity growth outperformed European peers in high-tech sectors historically but has lagged the U.S. since the Global Financial Crisis (GFC).
  - In lower-tech sectors, Swiss firms tracked U.S. performance until the GFC, after which Swiss labor productivity growth declined relative to the U.S.

### R&D intensity and innovation landscape
- R&D intensity (percent of sales):
  - Swiss manufacturing sector firms allocated 8 percent of their sales to R&D in 2005–23.
  - European average (manufacturing) = 4 percent.
  - U.S. average (manufacturing) = 7 percent.
- Swiss services sector firms invest less in R&D than European and U.S. peers.
- Sectoral distribution:
  - Switzerland has a larger share of firms in high-R&D manufacturing sectors (pharmaceuticals, capital goods, technology hardware, auto components).
  - The U.S. has a larger share in high-R&D services (software, healthcare, professional services, semiconductors).
- Sector-level comparison:
  - Swiss firms surpass U.S. counterparts in R&D intensity only in pharmaceuticals and lag in most other sectors.
- Implication: R&D activity in Switzerland is heavily concentrated in certain manufacturing sectors, indicating an imbalance in the innovation landscape.
- National R&D spending:
  - Switzerland invests about 3.5 percent of GDP in R&D, the fourth highest in the world.
  - The private sector accounts for approximately two-thirds of R&D funding.
  - Three-quarters of R&D funding went to R&D-intensive sectors: pharmaceuticals and chemical industry (40 percent); metals and engineering industry (11 percent); research laboratories (13 percent); new technologies (14 percent).
- Firm-size dynamics in R&D:
  - Increase in the share of small firms (fewer than 50 employees) doing R&D in recent periods.
  - The proportion of R&D-active large companies (more than 250 employees) has remained more or less stable.
  - The proportion of R&D-active medium-sized firms has been declining over time.

### Corporate finance and access to capital
- Corporate leverage and financing behavior:
  - Swiss firms exhibit one of the lowest corporate leverage ratios in Europe (long-term and current liabilities over assets; avg. 2001–21).
  - Swiss firms tap capital markets less than peers in the U.S. and Europe, showing relatively low equity issuance (gross issuance of equity as percent of lagged assets).
  - The limited reliance on both equity and debt financing is broad-based across industries and may reflect strong internal cash flows, particularly among MNEs.
- Implication: Limited external financing may pose challenges for startups and SMEs that rely more on external finance to scale.

### Venture capital ecosystem
- Venture capital (VC) investment:
  - VC investment averaged 0.3 percent of GDP in 2013–23 in Switzerland, above the EU average.
  - Swiss VC market still lags global leaders (e.g., U.S., UK) in scale and depth.
  - Key constraints: limited availability of late-stage funding and relatively small allocations by domestic institutional investors to VC.
- Implication: Constraints hamper scalability and commercialization of Swiss R&D outputs.

### Firm size distribution and concentration
- Firm size shares (average 1998–2021):
  - Micro firms (fewer than 9 employees) represent approximately 50 percent of manufacturing firms and about 45 percent of services firms.
  - Manufacturing features a substantial number of large companies (1,000+ employees); services feature more medium-sized companies.
- Comparison with U.S.:
  - U.S. has around 60 percent of manufacturing firms and over 80 percent of services firms with fewer than 9 employees.
  - In the U.S., large firms (1,000+ employees) represent about 20 percent in manufacturing and less than 10 percent in services.
- Economic concentration:
  - Swiss manufacturing: nearly 100 percent of employment and production occurs in firms with more than 1,000 employees.
  - Swiss services: large firms account for 35 percent of production and 40 percent of employment.
  - Firms with fewer than 9 employees contribute about 30 percent to overall production in the services sector.

### Role of MNEs
- MNEs’ contribution:
  - MNEs account for over 85 percent of gross value added overall, exceeding 90 percent in manufacturing.
  - The share of gross value added of MNEs increased from 2014 through 2022.
- Productivity effects:
  - High-productivity manufacturing MNEs pull up both average productivity growth and overall productivity levels.
  - Manufacturing excluding top MNEs shows substantially lower labor productivity than manufacturing including MNEs.
  - The gap between highly productive manufacturing MNEs and the rest of manufacturing firms has widened over time.
  - MNEs have a more modest impact on services productivity.

### Labor productivity growth and firm size
- Large firms show higher labor productivity growth than smaller firms.
- Empirical results:
  - Manufacturing firms with more than 250 employees saw a productivity increase of 62 percent between 2009 and 2019 (Lauter and Nussbaumer, 2025).
  - Productivity in services grew by 18 percent between 2009 and 2019.
  - Labor productivity growth becomes slightly negative for micro-enterprises with fewer than 10 employees.

### Sectoral employment and productivity reallocation
- Sectoral trends:
  - Swiss services sector experienced significant employment growth but declining productivity growth.
  - Expansion in media, professional, scientific, and technical services accompanied by slowdown in productivity growth.
  - The IT sector ranks among the lowest performers in productivity growth despite employment increases.
- Labor reallocation shortcomings:
  - Concentration of high-skilled workers in large frontier firms creates competition for talent, potentially contributing to talent misallocation and slower dynamism among young/small firms.
  - Lack of economies of scale constrains labor productivity growth in digital and IT sectors.
  - Possible factors: trade restrictions in computer services and measurement issues.

### Firm entry and business dynamism
- Entry rates for Swiss firms are significantly lower, almost 50 percentage points lower in both manufacturing and services compared to the EU.
- Low entry rates weaken reallocation mechanisms and reduce competitive pressure on incumbents, leading to more concentrated industries and slower adjustment to shifts in consumer demand and technology.
- SMEs, regulation, and competition:
  - Switzerland benefits from a comparatively efficient administrative framework but SMEs continue to face regulatory and administrative burdens.
  - The Red Tape Monitor 2022 identified areas with the heaviest perceived burden: construction regulations; food hygiene standards; import and export procedures; permit requirements; production facility expansions.
  - In these areas, over half of the companies affected stated that these legal regulations cause a high or fairly high burden.
  - Barriers to entry remain, and the merger control framework is viewed as relatively permissive.
  - Civil actions against cartels are rare, reflecting legal complexity and short statutes of limitation (OECD 2024).
  - The partial revision of the Cartel Act is highlighted as an important step toward strengthening competition.

### Ongoing reforms
- Swiss authorities are working on productivity-enhancing reforms, including:
  - revision of the Cartel Act to align merger review standards with international practices;
  - reform of the Vocational Training Act to strengthen higher vocational education.
- These efforts aim at boosting productivity through competition-friendly regulation and expanded market access, including the EU Single Market.

### Policy recommendations
- Support firm scale-up:
  - Enable more firms to reach sizes where productivity and innovation rates are higher.
- Address labor shortages and talent allocation:
  - Reduce concentration of high-skilled workers in large firms to support young and small firms.
  - Invest in upskilling and maintain an open labor market to ensure access to international talent.
- Enhance competition and reduce entry barriers:
  - Streamline administrative procedures, especially for SMEs (simplify regulatory and compliance requirements).
  - Lower regulatory and structural obstacles to market entry to enable new and innovative firms to challenge incumbents.
- Improve access to finance for SMEs and startups:
  - Expand financing options, such as deepening venture capital and alternative financing markets, to help young and growing firms invest in R&D and scale up operations.
- Deepen market integration:
  - Facilitate access to larger markets and openness of the Swiss market to foreign markets, particularly in services, to boost firm competitiveness and encourage diffusion of global frontier technologies.

*Source: IMF staff (sipea2025133).*

### 1. Real GDP per Person Employed of Switzerland vs. U.S. and Europe __________________ 2

### 1. Real GDP per Person Employed of Switzerland vs. U.S. and Europe

### Overview and key conclusions
- Switzerland’s labor productivity is generally higher than that in other advanced economy peers, albeit with significant variation across sectors and firm sizes.
- Multinational enterprises (MNEs) drive average productivity upwards, while small firms and the services sector lag.
- Policy goals identified: support firm scale-up, address labor shortages, and enhance competition to sustain labor productivity growth.

### Performance versus peers
- Switzerland ranks at or near the top among OECD countries in labor productivity, supported by strong R&D, innovation, infrastructure, education, and an open and competitive business environment.
- Switzerland is highly integrated into global value chains and specializes in high-value-added activities, hosting many large MNEs.

- Swiss real GDP per capita:
  - Has recently increased relative to European peers.
  - Has declined compared to the U.S.; the decline versus the U.S. reflected diverging trends of working hours and Switzerland's lagging labor productivity growth relative to the U.S. since the mid-1990s. This declining trend stabilized during the 2010s but picked up after the pandemic.

### Findings from firm-level analysis
- Data sources:
  - Orbis dataset covers 459,884 firms in Switzerland; only 1,129 firms provide relatively complete financial information; the rest report only sales and employment data.
  - Compustat sample includes 282 Swiss firms.
  - Financial and insurance companies are excluded from both datasets.

### Sectoral productivity patterns
- High-tech vs low-tech:
  - Swiss labor productivity growth outperformed European peers in high-tech sectors historically but has lagged the U.S. since the Global Financial Crisis (GFC).
  - In lower-tech sectors, Swiss firms tracked U.S. performance until the GFC, after which Swiss labor productivity growth declined relative to the U.S.

### R&D intensity and innovation landscape
- R&D intensity (percent of sales):
  - Swiss manufacturing sector firms allocated 8 percent of their sales to R&D in 2005–23.
  - European average (manufacturing) = 4 percent.
  - U.S. average (manufacturing) = 7 percent.
- Swiss services sector firms invest less in R&D than European and U.S. peers.
- Sectoral distribution:
  - Switzerland has a larger share of firms in high-R&D manufacturing sectors (pharmaceuticals, capital goods, technology hardware, auto components).
  - The U.S. has a larger share in high-R&D services (software, healthcare, professional services, semiconductors).
- Sector-level comparison:
  - Swiss firms surpass U.S. counterparts in R&D intensity only in pharmaceuticals and lag in most other sectors.
- Implication: R&D activity in Switzerland is heavily concentrated in certain manufacturing sectors, indicating an imbalance in the innovation landscape.

### Corporate finance and access to capital
- Corporate leverage and financing behavior:
  - Swiss firms exhibit one of the lowest corporate leverage ratios in Europe (long-term and current liabilities over assets; avg. 2001–21).
  - Swiss firms tap capital markets less than peers in the U.S. and Europe, showing relatively low equity issuance (gross issuance of equity as percent of lagged assets).
  - The limited reliance on both equity and debt financing is broad-based across industries and may reflect strong internal cash flows, particularly among MNEs.
- Implication: Limited external financing may pose challenges for startups and SMEs that rely more on external finance to scale.

### Venture capital ecosystem
- Venture capital (VC) investment:
  - VC investment averaged 0.3 percent of GDP in 2013–23 in Switzerland, above the EU average.
  - Swiss VC market still lags global leaders (e.g., U.S., UK) in scale and depth.
  - Key constraints: limited availability of late-stage funding and relatively small allocations by domestic institutional investors to VC.
  - Implication: Constraints hamper scalability and commercialization of Swiss R&D outputs.

### Firm size distribution and concentration
- Firm size shares (average 1998–2021):
  - Micro firms (fewer than 9 employees) represent approximately 50 percent of manufacturing firms and about 45 percent of services firms.
  - Manufacturing features a substantial number of large companies (1,000+ employees); services feature more medium-sized companies.
- Comparison with U.S.:
  - U.S. has around 60 percent of manufacturing firms and over 80 percent of services firms with fewer than 9 employees.
  - In the U.S., large firms (1,000+ employees) represent about 20 percent in manufacturing and less than 10 percent in services.
- Economic concentration:
  - Swiss manufacturing: nearly 100 percent of employment and production occurs in firms with more than 1,000 employees.
  - Swiss services: large firms account for 35 percent of production and 40 percent of employment.
  - Firms with fewer than 9 employees contribute about 30 percent to overall production in the services sector.

### Role of MNEs
- MNEs’ contribution:
  - MNEs account for over 85 percent of gross value added overall, exceeding 90 percent in manufacturing.
  - The share of gross value added of MNEs increased from 2014 through 2022.
- Productivity effects:
  - High-productivity manufacturing MNEs pull up both average productivity growth and overall productivity levels.
  - Manufacturing excluding top MNEs shows substantially lower labor productivity than manufacturing including MNEs.
  - The gap between highly productive manufacturing MNEs and the rest of manufacturing firms has widened over time.
  - MNEs have a more modest impact on services productivity.

### Labor productivity growth and firm size
- Large firms show higher labor productivity growth than smaller firms.
- Empirical results:
  - Manufacturing firms with more than 250 employees saw a productivity increase of 62 percent between 2009 and 2019 (Lauter and Nussbaumer, 2025).
  - Productivity in services grew by 18 percent between 2009 and 2019.
  - Labor productivity growth becomes slightly negative for micro-enterprises with fewer than 10 employees.

### Sectoral employment and productivity reallocation
- Sectoral trends:
  - Swiss services sector experienced significant employment growth but declining productivity growth.
  - Expansion in media, professional, scientific, and technical services accompanied by slowdown in productivity growth.
  - The IT sector ranks among the lowest performers in productivity growth despite employment increases.
- Labor reallocation shortcomings:
  - Concentration of high-skilled workers in large frontier firms creates competition for talent, potentially contributing to talent misallocation and slower dynamism among young/small firms.
  - Lack of economies of scale constrains labor productivity growth in digital and IT sectors.
  - Possible factors: trade restrictions in computer services and measurement issues.

### Policy recommendations (implicit in conclusions)
- Support firm scale-up to enable more firms to reach sizes where productivity and innovation rates are higher.
- Address labor shortages and the concentration of high-skilled workers in large firms to reduce talent misallocation and support young and small firms.
- Enhance competition and access to external finance (equity and later-stage venture capital) to improve scalability and commercialization of R&D, particularly for startups and SMEs.

*Source: A Firm Level Analysis of Labor Productivity in Switzerland (IMF, August 26, 2025).*

### 14. Swiss firms exhibit less dynamism than their U.S. and European counterparts. Entry

### 14. Swiss firms exhibit less dynamism than their U.S. and European counterparts. Entry

### Firm entry and business dynamism
- Entry rates for Swiss firms are significantly lower, almost 50 percentage points lower in both manufacturing and services compared to the EU.
- Schumpeterian growth models emphasize the importance of a continuous churn of young, innovative firms displacing older, less efficient incumbents (e.g., Aghion and Howitt 1992).
- When the rate of new firm entry is low:
  - the reallocation mechanism weakens, hindering aggregate productivity growth;
  - incumbents face less threat of displacement and reduced competition, leading to more concentrated industries and slower adjustment to shifts in consumer demand and technology.

### R&D activity and concentration
- Switzerland invests about 3.5 percent of GDP in R&D, the fourth highest in the world.
- The private sector is the primary contributor, accounting for approximately two-thirds.
- Three-quarters of R&D funding went to R&D-intensive sectors:
  - pharmaceuticals and chemical industry (40 percent)
  - metals and engineering industry (11 percent)
  - research laboratories (13 percent)
  - new technologies (14 percent)
- Firm-size dynamics in R&D activities:
  - Increase in the share of small firms (fewer than 50 employees) doing R&D in recent periods.
  - The proportion of R&D-active large companies (more than 250 employees) has remained more or less stable.
  - The proportion of R&D-active medium-sized firms has been declining over time.

### SMEs, regulation, and competition
- Switzerland benefits from a comparatively efficient administrative framework but SMEs continue to face regulatory and administrative burdens.
- The Red Tape Monitor 2022 identified areas with the heaviest perceived burden:
  - construction regulations
  - food hygiene standards
  - import and export procedures
  - permit requirements
  - production facility expansions
- In these areas, over half of the companies affected stated that these legal regulations cause a high or fairly high burden.
- Barriers to entry remain, and the merger control framework is viewed as relatively permissive.
- Civil actions against cartels are rare, reflecting legal complexity and short statutes of limitation (OECD 2024).
- The partial revision of the Cartel Act is highlighted as an important step toward strengthening competition.

### Conclusion: performance drivers and constraints
- Strengths:
  - Strong labor productivity supported by robust R&D, a high-quality education system, and deep global integration that fosters competition and innovation.
- Disparities and constraints:
  - Much of the strong performance is driven by MNEs in high-value-added manufacturing.
  - Productivity in small firms and the services sector has lagged.
  - Contributing factors include lower R&D intensity (for smaller firms), limited access to financing, a small domestic market, and high skilled labor costs.
  - A risk-averse financing environment and administrative frictions dampen business dynamism and constrain the innovative capacity of smaller firms.

### Ongoing reforms
- Swiss authorities are working on productivity-enhancing reforms, including:
  - revision of the Cartel Act to align merger review standards with international practices;
  - reform of the Vocational Training Act to strengthen higher vocational education.
- These efforts aim at boosting productivity through competition-friendly regulation and expanded market access, including the EU Single Market.

### Policy recommendations
- Further streamline administrative procedures, especially for SMEs:
  - Simplify regulatory and compliance requirements to reduce the operational burden on SMEs and encourage entrepreneurship.
- Enhance competition and spur innovation by reducing entry barriers:
  - Lower regulatory and structural obstacles to market entry to enable new and innovative firms to challenge incumbents.
- Improve access to finance for SMEs and startups:
  - Expand financing options, such as deepening venture capital and alternative financing markets, to help young and growing firms invest in R&D and scale up operations.
- Deepen market integration to help firms scale up and benefit from cross-border knowledge flows:
  - Facilitate access to larger markets and openness of the Swiss market to foreign market, particularly in services, to boost firm competitiveness and encourage diffusion of global frontier technologies.
- Address labor needs through upskilling and maintaining an open labor market:
  - Invest in education and training systems and policies that ensure access to international talent to alleviate labor constraints and support innovation-led growth.

*Source: IMF staff (sipea2025133).*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025133.pdf_