In the European Union, income per person, one of the main gauges of living standards, is on average one-third less than in the United States, mostly because of lower productivity—as emphasized by Mario Draghi’s Sept. 9 competitiveness report for the European Commission. But what is the cause of the problem? As we show in the forthcoming Regional Economic Outlook, Europe's aggregate productivity problem can be traced back to performance differences at the firm level. (Source: IMF)