Digital transformation and labor market indicators in the EU: Evidence from the COVID-19 shock using difference-in-differences

Type of the article: Research ArticleAbstractDigital transformation has emerged as a key driver of structural change in labor markets worldwide, especially in the aftermath of the COVID-19 shock. In the European Union, the pandemic particularly accelerated the adoption of digital technologies and remote work across economic activities. This study estimates the causal effect of the digitalization potential of economic activity (proxied by a binary classification into highly and less digitalized groups based on telework feasibility and digital intensity) on three labor market indicators: employment, hourly wages, and remote work. Using the COVID-19 shock as a quasi-natural experiment within a difference-in-differences (DiD) framework, the empirical analysis draws on quarterly panel data for a consistent sample of 27 EU Member States (excluding the United Kingdom) over 2018–2024 (N = 36,685). The results indicate that higher sectoral digitalization potential (telework feasibility and digital intensity) does not significantly affect aggregate employment levels, as evidenced by a near-zero DiD coefficient (0.06, p ≈ 0.98). In contrast, it has a statistically significant positive effect on wages, with a DiD coefficient of 0.52 €/hour (p < 0.001), corresponding to an increase of approximately 4.6% in the wage gap between highly and less digitalized activities. The strongest effect is found for remote work: the DiD estimate is 40.74 percentage points (p < 0.001). Remote work rose from 17.6% to 82.1% in highly digitalized sectors, compared with only 1.3% to 6.6% in less digitalized economic activities.AcknowledgmentThis article was prepared within the framework of the research project “Modelling the impact of economic digitalisation on public health in Ukraine in the context of preserving human capital” (State Registration No. 0126U001085).