Digitalisation Boosts Labour Demand in Europe

The progressing digitalisation raises the question about the extent to which jobs are technically automatable and therefore replaceable by machines. A new study by the Mannheim Centre for European Economic Research (ZEW) and the University of Utrecht now shows that automation has a positive net effect on labour demand in Europe.

The study assesses the impact of technological change on labour demand across European regions between 1999 and 2010. According to the study, automation increases the demand for products as a result of lower production costs and, ultimately, also lower product prices. The higher product demand in turn leads to an increase in labour demand.

Concerns that machines and algorithms may render human workforce redundant have repeatedly been voiced in public debate. The study by ZEW and the University of Utrecht is the first to present results on the long-term economy-wide effects of automation and digitalisation on labour demand. The authors empirically estimate the aggregate effects of technological change on labour demand for 238 European regions across 27 EU countries.

"Labour has been racing with rather than against the machine"

Overall, they find that the net effect of technological change on labour demand was positive for the period between 1999 and 2010. This does not mean that machines did not replace humans and cause a decrease in labour demand. However, this effect was overcompensated by product demand, which increased labour demand to the extent that it outpaced the substitution effects.

The magnitude of the positive impact of automation on labour demand depends largely on the distribution of gains from the increased productivity of technological change. To show this, the authors determined a lower and upper bound estimate for the total labour demand effect. The upper bound estimate of an increase in labour demand of 11.6 million jobs assumes that all income is spent in the local economy. The lower bound estimate of an increase in labour demand of 1.9 million jobs, on the other hand, rests on the assumption that only wage income feeds back into consumption, while the remaining income is spent outside the EU.

The fact that automation has positive effects on the labour demand in the long run does not automatically result in more jobs being created in the real economy. "Due to short- or medium-term adjustment costs prompted by labour demand shifts across occupations, sectors and/or regions, labour demand changes do not correspond one-to-one with the number of jobs created," explains Dr. Terry Gregory, senior researcher at ZEW and co-author of the study. Instead, the results imply that fears of long-run technological unemployment may be overstated. "At least for European countries over the period considered, labour has been racing with rather than against the machine."

For more information please contact

Dr. Terry Gregory, Phone +49(0)621/1235-306, E-mail gregory@zew.de