The Impact of a Decade of Digital Transformation on Employment, Wages, and Inequality in the EU: A Conveyor Belt Hypothesis

Abstract We study the effects of digital transformation in the European Union on individual employment outcomes, wage growth, and income inequality, during the decade 2010–9. Our results allow us to formulate a ‘conveyor-belt’ hypothesis suggesting that employment confers a competitive advantage in navigating the digital transition due to the accumulation of pertinent skills in the workplace. Because digital skills are acquired with the changing demands of the job, their initial endowment matters less for the employed than for the non-employed. Furthermore, the ability of out-of-work individuals with higher digital skills to jump back on the labour market is reduced for those with higher education, suggesting a faster depreciation of their digital skills. A similar effect, although of limited size, is found for earning growth: out-of-work individuals with higher digital skills are not only more likely to find a job, but experience higher earnings growth, compared to their peers with lower digital skills. Our results point to a vulnerability of workers ‘left behind’ from the digital transformation and the labour market. The overall effects on inequality are, however, limited.