Study on Poverty and income inequality
in the context of the digital transformation

Digitalisation has a positive impact on the overall economy and employment opportunities in the EU. This is shown by the results of the study conducted by Prognos on behalf of the European Commission together with the Centre for Microsimulation and Policy Analysis (CeMPA) and the Centre for European Policy Studies (CEPS).

The study sought to quantitatively estimate the impact that the digital transformation has had on employment, wages, poverty, and income inequality in the last decade – both for each Member State and for the European Union as a whole. Furthermore, the study analyses in 27 country profiles to what extent the member states are prepared for the digital transformation and which digital technologies are used in the public sector to ensure a just transformation.

Digital skills are essential for finding a job

With the increasing digitalisation of European labour markets, concerns about inequality and poverty are growing. This study attempts to analyse these concerns in more detail. The econometric analysis of the study used both macro- and micro-analytical approaches to provide a nuanced understanding of how digital advances are changing labour and income dynamics in the EU. The former involves examining labor market outcomes at sector and country level. The latter involves examining individual outcomes that show how specific subgroups are affected by change.

These are the key findings: 

At a macroeconomic level:

• Digitalization has a minor but positive impact on the EU economy as a whole. 
• There are no negative effects on employees' wages.

At microeconomic level: 

• The digital transformation has a significant positive impact on employment opportunities, especially for the EU's low-to-middle educated population. 
• These effects are stronger for those who are unemployed to begin with, suggesting that digital skills are crucial to finding employment, but less important to retaining it.

Taking these results into account, the digital transformation had a minor but positive overall impact on the EU economy in the period 2010-2019.

The study also provides a forward-looking view to estimate the impact of the digital transformation in the coming decade under different scenarios. The DINOS forecasting model was used in conjunction with a microsimulation via EUROMOD.

The results indicate that the potential future impact of the digital transformation on income, inequality and government budgets shows only minimal expected changes in the three scenarios. However, this could be due to the fact that the economic forecasts were made on the basis of data from 2010 to 2019 - a period in which hardly any significant leaps in digitalization can be observed.

Digital transformation: how prepared are the EU regions?

The European Commission commissioned Prognos, the Centre for Microsimulation and Policy Analysis (CeMPA) and the Centre for European Policy Studies (CEPS) to carry out a study on poverty and income inequality in the context of the digital transformation as part of the EaSI programme. The final report of this study consists of three parts. In addition to the results of the econometric analysis described above, two further parts were produced: 

Part A of this study analyses the extent to which the 27 EU Member States are prepared to ensure a socially fair digital transformation in the coming years, both on the basis of their current situation and their future prospects. This analysis focuses on the labour market, the digital skills of the population, social protection and cross-cutting dimensions such as the degree of digitalisation of companies and the quality of digital infrastructures. 

The result of this part are 27 country dossiers in which each member state is assessed according to the above-mentioned dimensions.

The most important findings:

• A high level of digital skills in the population is a prerequisite for a socially just digital transition. Skills vary considerably between Member States.
• Countries with more comprehensive social protection systems will be better positioned to mitigate the potentially negative impact of the digital transformation on inequality and poverty. 
• Further investment in digital skills and strengthening social protection therefore appears to be a strong policy priority.

Part B of the study uses 30 case studies to analyse some of the most important current and potential uses of digital technologies - including AI - in the public sector. This is intended to improve the design and implementation of social benefits and active labour market policies to complement the monitoring of poverty and income inequality.
The outcome of this part is a typology of digital technologies currently applied in the public sector. This typology can be used to highlight opportunities and barriers for the large-scale use of innovative digital technologies in the public sector. Five types of technologies have been identified:

• Automation
• Analytics software
• Digital public services
• Blockchain & cryptography
• New data sources

Links and downloads

About the study: Impact of the digital transformation on employment, wages and inequality

Part A: Ensuring a socially just digital transformation

Part B: Use of digital technologies (including AI) by the public sector

Project team: Lennart Galdiga, Neysan Khabirpour, Jan Limbers, Lorenzo Pelizzari

Last update: 18.06.2024