Category: Uncategorized

 

The rapid expansion of automation has raised concerns for workers’ welfare, as robots are often implemented to improve efficiency and hence may replace humans. In the United States, the displacement of jobs due to automation has substantially reduced wages and employment, especially for those at the lower end of the wage scale.

 

But in a study of 14 European countries between 2006 and 2018, a period of intensive robot adoption in the European Union, researchers found that tax and benefit policies largely absorbed labour market shocks caused by automation.

 

“While the installation of industrial robots slightly decreased wages and reduced employment among the most exposed workers, the effect on household disposable income inequality was relatively small,” said Karina Doorley, a researcher at the Economic and Social Research Institute in Dublin, and a co-author of the paper. “Welfare and social benefits were a principal reason for this.”

 

The study shows that while inequality has widened in many countries in the last 15-20 years, it was not driven by robot adoption, but by other factors and policy choices that limited income redistribution.

 

Doorley and co-authors used data from several EU sources, including the EU Structure of Earnings Survey, the EU Labour Force Survey, and the EU Statistics on Income and Living Conditions to estimate the effects of robot penetration on wages and employment rates. Next, these estimates were used to calculate wages and employment rates that would have been recorded in 2018 if robot penetration remained at the 2006 level in each country. Finally, the resulting data was injected into EUROMOD, a tax-benefit microsimulation model, to assess the anticipated effects on household incomes.

 

The automation-driven increase in household income inequality was most pronounced in Eastern European countries that witnessed increases in robot penetration, such as Slovakia and Hungary. However, the magnitude was small – in all countries studied, it was below 1.5% of the 2018 value of the Gini index, much lower than the actual changes in Gini indices in most countries between 2006-2018.

 

Automation had a minor impact on household income inequality despite widening wage inequality and market income inequality to a larger extent. “In most countries, workers more exposed to robots tend to live with other household members with similar exposure. This pattern slightly amplified the automation shock at the household level, but the size of this effect was tiny, especially compared to the role of benefits,” the researchers wrote. They found that in general, benefit systems played a dominant role in cushioning market income losses, while taxes had a more muted role.

 

Past studies into the drivers of income inequality have focused on the role of tax-benefit systems and demographic change, but this is the first evaluation to isolate the effect of automation, the authors said.

 

There are some limitations to the findings. First, the simulations did not consider behavioural responses to automation. Second, changes in non-labour market incomes, fertility, or household structures were not included in the calculation.

 

Still, the findings paint a less gloomy picture of robots’ role in Europe’s economic development, the author said.

 

“Automation will affect the future of work, but robots explain only a minor share of changes in household income inequality in the countries that we studied,” said Piotr Lewandowski, a head of the Institute for Structural Research and co-author of the paper. “Tax-benefit systems were, and will continue to be, essential to mitigating the effects of automation shocks,” Lewandowski added.

 

Doorley, K., Gromadzki, J., Lewandowski, P., Tuda, D., and Van Kerm, P. (2023). Automation and Income Inequality in Europe (Deliverable 3.5). Leuven: UNTANGLED project 1001004776–H2020.

 

The paper is available here.

 

In his presentation, “Development of AI: Productivity and Distributive Effects in Europe,” Francesco Venturini shared the results of his work with Fabrizio Pompei, demonstrating that the productivity of firms developing AI is 13.7% higher than of those who are not innovating in this field. The generation of AI technologies also helps laggard firms catch up with the productivity leaders.

 

AI development also has a significant impact on the share of labour in regional income (gross value added, GVA). Researchers found that AI reduces labour share and widens regional income disparities. While the share of regional income for highly skilled labour remains unaffected, that of medium-skilled workers decreases by 3%, and that of low-skilled workers decreases by 9 % with the doubling of AI-related innovation. Therefore, AI seems to contribute to an uneven distribution of wage income.

 

You can access Francesco Venturini’s presentation here.

 

For a deeper dive into UNTANGLED research on AI, read Fabrizio Pompei and Francesco Venturini’s paper by clicking here.

 

Date: 19 October, 2023

Time: 2:00-3:45 pm CEST

 

This online event, titled “Harnessing the Benefits of AI, Industry 5.0, and Other Digital Innovations – More Opportunities but Also More Challenges for Social Innovations?” is organised by the European School of Social Innovation (ESSI) and will be chaired by Antonius Schröder (TU Dortmund University).

 

Don’t miss out! Register by 13 October here 

For more details and the programme, please visit ESSI website

 

Incentive pay schemes (IPS) are remuneration policies that link an employee’s salary to their performance and the achievement of specific objectives. An increasing number of companies are adopting these policies to motivate employees and enhance organisational performance. While IPS tend to widen wage disparities within firms, scholars and policymakers have expressed concern that their growing popularity might exacerbate the gender pay gap. However, Perugini and Pompei’s study reveals that companies implementing IPS actually experience a narrower pay gap between female and male employees. Nevertheless, the effect is absent in companies that invest heavily in technology and intangible assets.

 

The researchers analysed the salaries of over 6 million workers employed in 142,251 companies across Germany, France, Italy, Spain, and the UK. They found that female workers, who constituted 47% of the sample, earned on average 12.5% less than their male counterparts. The firm-level gender pay gap was most pronounced in the UK, at 16%, while it was narrowest in Italy, at 9.5%. When combining this data with information on IPS adoption, Perugini and Pompei discovered that a higher prevalence of IPS correlated with a narrower gender pay gap.

 

“There are a number of factors that can trigger a wage gap, and in our analysis we controlled for their impact,” said Perugini. “In companies with performance-based remuneration the pay gap shrinks. This is probably because these companies attract a specific type of female worker, that is women who have similar skills, potential and ambitions to men, and who face fewer constraints related to household responsibilities. Additionally, these employers tend to have more effective screening and monitoring tools to prevent discrimination.”

 

Furthermore, Perugini and Pompei found that IPS are more commonly adopted by innovative organisations, where incentivising worker performance is crucial for success. However, the positive impact of IPS on narrowing the gender pay gap varies by industry and is related to investment in information and communication technology (ICT) and intangible assets. The pay gap narrows primarily in firms that invest less in technology.

 

The authors highlight that more substantial investments in ICT, research and development (R&D), and brand development often result in unpredictable working hours, making it harder for women to balance work and household responsibilities. Consequently, their chances of meeting their targets decrease, and female employees earn less than their male co-workers.

 

“Our study suggests that it’s not IPS themselves that worsen gender pay inequality, but rather the specific technological context in which they are implemented,” said Pompei. “This underscores the need for policy measures aimed at redistributing unpaid work responsibilities between genders, as proposed by the Work-Life Balance Directive.”

 

Cristiano Perugini & Fabrizio Pompei (2023) Pay incentives, intangibles, and gender wage inequality, Industry and Innovation, DOI: 10.1080/13662716.2023.2254264

 

 

 

The event will be held in Leuven, Belgium on 23 November 2023. Please send your full papers or extended abstracts to Ilse Tobback at ilse.tobback@kuleuven.be

We invite contributions addressing the implications of technological transformation, globalisation, and demographic change for:

• Heterogeneous impacts of megatrends on labour market outcomes
• Work-related migration and skills
• Education and future skill needs, productivity growth
• (Regional / Rural-urban / EU) convergence/divergence, EU economic governance
• Developments in trade and global value chains
• Technology and human capital
• (Wage / regional) inequality
• Welfare states and social policy
• Covering the combined impact of two or more driving forces – technological transformation, globalisation, and demographic change – is considered an added value.

 

All the detailed information is in the Call for Papers here.

Register here.

Any queries can be emailed to Ilse Tobback at: ilse.tobback@kuleuven.be

 

 

In the session on Mobility, chaired by UNTANGLED researcher Piotr Lewandowski (IBS), Ludivine Martin from LISER (the Luxembourg Institute of Socio-Economic Research) presented research on the skills supplied by migrant workers to the French and German labour markets. The paper, co-authored with Ronald Bachmann (RWI – Leibniz-Institut für Wirtschaftsforschung) and Bertrand Verheyden (LISER), analyses data on the distribution of migrants across various business sectors, occupations and regions, as well as education levels and age groups. The authors identify the occupations that are under- or over-supplied and assess the role of migrants in addressing the labour shortages faced by France and Germany.

 

Karina Doorley (ESRI) presented another UNTANGLED study, investigating how robot penetration impacted income inequality in 14 European countries during the period from 2006 to 2018. This paper, co-authored with Dora Tuda (ESRI), Philippe Van Kerm (LISER), Piotr Lewandowski, and Jan Gromadzki (IBS – Institute for Structural Research), reveals that while automation did contribute to widening income inequality in European countries, its impact was relatively small. The study highlights that European countries’ tax and benefit systems effectively absorbed the wage and employment shocks resulting from automation, with benefits playing a particularly significant role, especially in Western Europe. These findings suggest that welfare states in Europe are more effective in mitigating the effects of automation than the system in the United States.

 

The Development Policy Research Unit at the University of Cape Town, a partner of the Untangled project, has released two working papers that delve into the effects of globalisation and technological advancements on South Africa’s insurance and Business Process Outsourcing (BPO) sectors.

 

A case study of the BPO services sector shows that globalisation has played a pivotal role in the creation of new employment opportunities and has the potential to reduce inequality in South Africa – a country dealing with one of the world’s highest unemployment rates, exceeding 30 percent. The authors of the study demonstrate that this positive outcome was achieved through a collaboration between the government and various social partners. Together, they attracted substantial foreign investment into the sector and managed its growth by leveraging the country’s comparative advantages, such as lower operating costs for businesses, a highly skilled workforce, and cultural affinity with other English-speaking countries.

 

“A key discovery is that globalisation presents opportunities for growth in the service sectors of developing countries like South Africa,” said Zaakhir Asmal, Research Officer at the Development Policy Research Unit (DPRU) at the University of Cape Town. “However, in order to maximise the gains and ensure inclusive growth, stakeholders must take a coordinated approach that targets specific outcomes, such as job quality and upgrading skills.”

 

The paper highlights several critical challenges that must be tackled to facilitate the continued growth of the sector. These include addressing spatial inequality and improving working conditions.

 

In the case study examining the impact of technology adoption within the South African insurance sector, it becomes evident that technological innovations are likely to result in job losses, while the impact on job quality remains uncertain. The authors analysed the changes taking place in the sector, driven by the entry of new Insure Tech startups that integrate big data and AI into their operations and product offerings. The paper reveals that with the influx of disruptors and the increasing prevalence of technology in the sector, significant skill gaps start to emerge as a major concern for insurance companies. This requires reskilling and changes in organisational culture that can bridge the knowledge and technology divide in the workforce.

 

The authors’ findings underscore a concerning trend: technological innovation is likely to widen inequality in South Africa, as it benefits individuals with highly developed skills, often from more affluent socio-economic backgrounds. In light of these observations, it becomes clear that the technological innovation in the insurance industry needs to be carefully managed, with appropriate policies implemented to ensure that the benefits apply to everyone in society, not just a few.

 

Allen Whitehead, C., Asmal, Z. and Bhorat, H. (2023). Co-ordination to support inclusive growth in developing countries in the context of globalization: The case of the business process outsourcing sector in South Africa. Development Policy Research Unit Working Paper 202307. DPRU, University of Cape Town.

 

Asmal, Z., Bhorat, H., Martin, L. and Rooney, C. (2023). Technological Change and Workplace Innovation in the Insurance Sector in South Africa: Disruption with the Potential for Social Good in a Developing Country Context? Development Policy Research Unit Working Paper 202306. DPRU, University of Cape Town.

 

In their paper “Structural change and polarisation in the rural-urban divide” Roman Römisch of the Vienna Institute for International Economic Studies and Larysa Tamilina of the Kyiv School of Economics examine how globalisation has influenced regional development.

 

Römisch and Tamilina analysed the changes in GDP per capita across EU regions and confirmed that urban regions, on average, enjoy a 30% higher GDP per capita at Purchasing Power Standards than rural ones. However, they also observed that rural regions have managed to narrow the gap with urban areas between 2000-2019.

 

“Even though the convergence process slowed after the 2008/2009 financial crisis, there was no indication of any increase in the polarisation of GDP per capita levels between rural and urban regions,” Römisch said.

 

The authors argue that globalisation and structural change towards manufacturing industries played a crucial role in driving the catching-up process. Regions that successfully transitioned their production structures in favour of manufacturing, especially in technology intensive sectors, benefitted in terms of faster economic growth and higher levels of economic development. These gains applied to all types of regions, irrespective of their level of urbanisation. In turn, the findings suggest that supporting the industrialisation of the EU regions, in particular the less developed ones, might be a recipe to strengthen economic convergence within the EU.

 

The paper highlights the crucial role of EU cohesion policy in reducing economic polarisation and facilitating growth in less developed regions. These regions face more challenging conditions compared to their urban counterparts, making them less attractive for investments. By supporting the development of transport and energy networks, broadband internet, or by investing in the upskilling and competitiveness of small and medium enterprises, the EU could increase the attractiveness of those regions. The crucial point is that this support needs to take place in a coordinated way, to tackle the many disadvantages of the less developed regions with a holistic approach.

 

“Although this kind of support is a challenging task, often criticised for inefficient allocation of public money, we show that EU and national regional policies can help level the playing field for the rural region. As a result, regional disparities can be tamed,” Tamilina said.

 

The paper shows that by addressing the unique challenges faced by rural areas, economic policies at various levels of government can play a pivotal role in fostering regional development.

 

Römisch, R., & Tamilina, L. (2023). Structural change and polarisation in the rural-urban divide (Deliverable 4.8). Leuven: UNTANGLED project 1001004776 – H2020.

 

To read the paper, click here.

 

Full papers or extended abstracts can be sent to Ilse Tobback at: ilse.tobback@kuleuven.be.

We invite contributions addressing the implications of technological transformation, globalisation, and demographic change on:

• Heterogeneous impacts of megatrends on labour market outcomes
• Work-related migration and skills
• Education and future skill needs, productivity growth
• (Regional / Rural-urban / EU) convergence/divergence, EU economic governance
• Developments in trade and global value chains
• Technology and human capital
• (Wage / regional) inequality
• Welfare states and social policy

Covering the combined impact of two or more driving forces – technological transformation, globalisation, and demographic change – is considered an added value.

All the detailed information is in the Call for Paper available here. Any queries can be emailed to Ilse Tobback at: ilse.tobback@kuleuven.be

 

The study finds, migrants take up positions in sectors such as agriculture, construction, trade, and healthcare, and often have different occupational preferences from native workers.

 

In their paper, “Migration and the Evolution of Skill Supply and Demand”, Ronald Bachmann, Aya Elewa, Ludivine Martin, Isabelle Rabaud, Bertrand Verheyden, and Marcel Voia delve into the disparities in education and age between migrant and native workers. The study also sheds light on how migrants are distributed across various business sectors, occupations, and regions.

 

“On a labour market profoundly impacted by digitalisation, globalisation, and demographic changes, it is vital to identify recent trends in labour shortages and recognise which skills are requested” says Ronald Bachman, a labour economist at the RWI – Leibniz Institute for Economic Research. “Our study suggests that migrants are more willing to undertake jobs that may be less desirable to native workers, thereby addressing labour gaps in these occupations.”

 

The study reveals that migrants are unevenly distributed across sectors, occupations, and regions. They are predominantly employed in medium- and low-skilled occupations, while high-skilled roles are primarily filled by native workers. However, North American migrants exhibit higher representation in high-skilled occupations, setting them apart from other migrant groups.

 

The study also shows that about two-thirds of migrants lack a tertiary degree, particularly those from emerging and developing countries.

 

In 2021, migrants from Asia and Latin America were found to be more actively involved in wholesale and retail trade, as well as other service-oriented industries; those from North America are more active in financial and professional services, as well as in public administration, education, and the health sector, while migrants from Europe and Africa are much more dispersed across all sectors.

 

Shortages by occupation: the challenges in Germany and France

 

Researchers zoomed in on the characteristics of migrant employees and demand for labour in France and Germany, the EU’s two largest economies. Their analysis shows that migrants were not evenly distributed across these countries. In France, they were primarily found in the region surrounding Paris (Ile de France), while in Germany they were concentrated in four regions: Baden Württemberg, Bayern, Nordrhein Westfalen, and Hessen.

 

In 2021, five high-skilled occupations, primarily in science, technology, engineering, and math (STEM) fields, were identified as facing shortages in both countries. At the top of the list of undersupplied occupations in Germany were medical doctors, followed by database and network professionals. Meanwhile, food preparation assistants and cleaning workers were the most oversupplied. In France, mathematicians, actuaries and statisticians, and legal professionals were the high-skilled workers who were hardest to find, followed by other health professionals.

 

The research found that in 2021, Germany faced a higher number of occupations in shortage than France. However, the German labour market was successfully addressing these shortages through the presence of migrant workers from EU and non-EU countries.

 

“To address these shortages, it may be necessary to increase domestic education in these fields or attract more skilled migrants,” Ludivine Martin, a researcher at the Luxembourg Institute of Socio-Economic Research said. “In terms of the evolution of skills demand, we observe that the similarity of requested skills over the period 2019 to 2021 is higher for high-skilled occupations than for medium-skilled ones.”

 

The authors have some recommendations on how companies can overcome the current labour shortages. They propose strategies such as training and education programmes for existing employees, and partnerships with educational institutions to develop a skilled workforce pipeline. Meanwhile, policymakers should address the challenges faced by highly-skilled non-European migrants in having their qualifications acknowledged in the EU, as the mismatch between their skills and local labour market requirements can lead to underutilisation of their expertise and hinder efforts to alleviate shortages in specific occupations.

 

Bachmann, R., Elewa, A., Martin, L., Rabaud, I., Verheyden, B., & Voia, M. (2023). Migration and the evolution of skill supply and demand (Deliverable 3.3). Leuven: UNTANGLED project 1001004776 – H2020.

 

The paper is available here.