The Role of Digital Transformation in Shaping Labor Productivity across EU Member States

Abstract For labour productivity improvement, economic growth, and labour market transformation, digital transformation is required. Understanding the relationship between productivity and digitalisation is becoming more and more important as the European Union pursues its digital agenda. This study is grounded on the EUROSTAT data and machine learning to examine the contribution of digital transformation to employee productivity for a group of EU member states between 2012 and 2023. The study uses the eXtreme Gradient Boosting Regressor to investigate economic variables like GDP (Gross Domestic Product) per capita in purchasing power parity as well as crucial indicators of digitalisation like internet banking usage, the availability of internet, and digital exclusion. The results show that while productivity is substantially impacted by digital transformation, the impact is varied. The results show that while productivity is substantially impacted by digital transformation, the impact is varied. While digitalisation indicators recorded varying but comparatively modest effects, the GDP per capita was the most dominant predictor, accounting for 93.37% of the efficacy of the model. Use of SHapley Additive exPlanations analysis, which provides a profound understanding of how digital drivers drive productivity outcomes, is a significant methodological contribution of this study. The model, with R2 of 0.95, showed useful predictive accuracy, showing that it was robust. This study provides data-driven assessment of the impact of digitalisation on labour markets by the integration of machine learning and economic analysis, rather than traditional econometric methods. Policy implications are that increasing internet accessibility will maximize productivity gains, especially in the developing world. Digital infrastructure and capacity building investments are required for economic growth on an equal scale. Emerging studies need to examine the impact of digitisation across different sectors and how it can supplement labour automation.