The Effect of Digitalization on Unemployment Reduction

Digital transformation and the digitalization of economic activity are ongoing trends profoundly shaping the global economy. Digitalization reflects digital inputs in the production process and new household and government consumption modes, investment possibilities, and financial instruments, increasingly envisaged by digital technologies and tools. This is also impacting the labour markets, on the one hand substituting machines to labour for routinized tasks and thus decreasing the demand for soft skills labour, but on the other hand, increasing the need for new professions revolving around new production and consumption modalities and digital skills. Considering these contrasting effects, it is essential to estimate the overall impact of digitalization on employment. Therefore, this study captures the impact of economic growth and digitalization on unemployment change, evaluating a modified version of Okun’s Law on a balanced panel data set for 58 countries between 2013 and 2019. The results from the estimation of a fixed-effect model show the empirical validity of Okun’s law for the sampled countries and a significant contribution of digitalization on unemployment reduction.