What are the impacts of Cohesion Policy on the trade-off between employment and productivity?

This paper examines the heterogeneous effectiveness of European Union (EU) Cohesion Policy in fostering regional growth, considering the potential trade-off between productivity improvement and job creation. By analysing the impact of European Structural and Investment Funds on regional development at the NUTS-2 level, the study contributes to the literature on productivity and employment trade-offs at the regional level. A novel empirical approach, based on a multi-input multi-output transformation function, is employed to explore the differing impacts of EU Cohesion Policy on gross domestic product (GDP) per employee and employment rate. The findings suggest that there exists heterogeneity (across different funds and regions) in the effects of Cohesion Policy on the trade-off between employment and productivity. Striking a balance between productivity-boosting investments and job creation is crucial in ensuring sustainable economic development and social inclusion and in reducing regional disparities.