Operating performance recovery in European service sectors after COVID-19
When COVID-19 restrictions lifted, the main question was simple: had business come back? Governments and statisticians tracked sales, jobs and tourism numbers, and by 2023 many European service industries looked healthy. But a recent study by Elena Muñoz-Muñoz, José Corchado and J. Agustín Franco Martínez, published in Service Business, asks a different question: did companies actually make money from that returning business?
Beyond firm profitability, the growth of the services sector also has important implications for the labour market, as a World Bank and WTO report shows that women’s share of employment in services has risen significantly worldwide.
What the researchers did
The team used official Eurostat data covering 16 European countries and eight service sectors, including retail, land and air transport, hotels, restaurants, travel agencies, and computer and information services. That produced 128 possible country-sector combinations, of which 125 had enough data to analyse.
Rather than comparing 2023 with 2019, the usual yardstick, they compared it with where each sector would have been if its pre-pandemic growth from 2015 to 2019 had simply continued. This matters because a sector already growing quickly before 2020 can look fully recovered when it has merely returned to its old level, while still sitting below where it was headed.
They measured two things. The first was turnover, meaning total sales. The second was the "gross operating rate", the share of each euro of sales left over as operating surplus after costs, including wages.
The main finding: a recovery in quantity, not quality
The researchers sorted each country-sector pair into three groups:
- Solid recovery (45%): sales were back on track and profit margins held up.
- Activity-only recovery (39%): sales were back on track, but margins fell more than one percentage point below the pre-pandemic trend.
- Incomplete recovery (16%): sales were still well below where they should have been.
So nearly four in ten cases looked like successes if you only checked sales. Even with a stricter test, requiring sales to have actually reached the pre-pandemic trend, about a third (33.6%) still showed this pattern.
Why sales didn't translate into profit
The most striking result is that how much sales rebounded told you almost nothing about whether profits recovered. The statistical link between the two was essentially zero. What did matter was productivity, meaning how much value each worker produces.
The explanation is straightforward. After the pandemic, labour markets tightened and wages rose. Pay per worker climbed by roughly 8% above its pre-pandemic trend in all three groups, so rising labour costs were not unique to struggling sectors. The difference was whether workers' output kept pace. In the solid-recovery group, productivity ran about 15.6% above trend, which comfortably covered higher pay. In the activity-only group, productivity was roughly flat, so the wage increases ate directly into profits.
The authors built a simple ratio, productivity divided by pay per worker, to capture this. It tracked profit margins very closely. The authors stress that this is partly an accounting relationship, so it should be read as a diagnostic tool rather than proof that productivity causes profits.
Surprises along the way
Two common assumptions took a knock. One is that digital services were the obvious winners. Computer programming and information services did show the strongest sales recovery, yet 56% and 50% of their country cases, respectively, fell into the activity-only group, and information services had the largest average margin decline of any sector. Fast growth, in other words, was not the same as healthy recovery.
The other is that sector explains everything. Within the same sector, results varied enormously. In air transport, the margin gap ranged from nearly 28 points above trend in Germany to 26 points below in Italy. Countries differed too. Greece and Belgium both saw strong sales recovery, but Greece's margins rose well above trend while Belgium's fell below it.
Caveats
The authors are careful about what they can claim. The data are country-sector averages, so they cannot show what individual firms experienced, and changes such as weaker firms closing could flatter the averages. Sales are measured in current prices, so inflation may inflate them, though tests using price-adjusted figures still found the activity-only pattern. The sectors were chosen deliberately rather than at random, and the results show associations, not cause and effect.
The takeaway
Declaring a recovery based on sales alone can be misleading. A business or sector that is busy again but earning thinner margins is more fragile, with less room to invest or absorb the next shock. The authors suggest pairing activity figures with profitability and productivity indicators to see whether recovery is real or only apparent.
Executive Summary
This study compares 2023 data with pre-pandemic trends (2015-2019) across eight service sectors in 16 European countries, using indicators such as turnover and gross operating margin. The results show that recovering economic activity does not guarantee recovering profitability. Of the 125 country-sector observations analysed, 39.2% showed a recovery in activity that did not necessarily translate into improved profitability. When a stricter criterion is applied to consider turnover as recovered, this share falls to 33.6%.
The study notes that improvements in profitability are more closely linked to higher productivity and to firms’ ability to absorb labour costs than to simple turnover growth. In conclusion, to properly assess the post-pandemic economic recovery, it is not enough to look at whether firms are selling more; it is also necessary to analyse whether they are producing more efficiently and improving their operating results. The study therefore recommends combining indicators of economic activity with indicators of productivity and profitability.
Muñoz-Muñoz, E., Corchado, J.C., Franco Martínez, J.A. (2026). Operating performance recovery in European service sectors after COVID-19. Service Business, 20: 24. https://doi.org/10.1007/s11628-026-00624-7