Effects of limiting the number of subcontractor tiers to two

The European Parliament is considering a regulation to limit subcontractor tiers to two across sectors, notably construction. This report argues such a restriction would harm productivity, competition, and innovation. Specialisation through subcontracting has driven efficiency and growth, especially in Sweden and the EU. Limiting tiers would increase bureaucracy, reduce flexibility, and disadvantage small firms. Estimated short-term costs are SEK 13–25 billion for Sweden and EUR 30–45 billion for the EU, with long-term impacts likely higher. The proposal may also violate EU law on freedom of business and contract. Evidence suggests fewer tiers won’t reduce accidents or crime, and may worsen work conditions. Instead of legislation, the report advocates improved cross-border information sharing and enforcement to combat illicit practices. Overall, the regulation risks undermining competitiveness and economic resilience.