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In an interview with Francesca Guerzoni, Piotr Lewandowski of the Institute for Structural Research (IBS) presented the key findings from the UNTANGLED research paper “Automation and Income Inequality in Europe,” which he co-authored. The research reveals that although robots may have some adverse effects on the earnings and employment rates of more exposed worker groups in Europe, their influence on household income inequality is relatively limited, thanks to the balancing effect of European benefit systems.

 

Lewandowski highlighted the substantial variations among European countries. For instance, Belgium and Germany have experienced significant labor market disruptions due to automation, but their tax and welfare systems have responded robustly. This contrasts with Eastern European countries, where the response has been less pronounced.

 

For the full interview, please click here. To access the research paper, click here.

 

The research explores the extent to which wage disparities among employees in similar roles are influenced by a company’s willingness to invest in improving skills. The authors analysed spending both on general training and on IT-specific courses.

 

The paper finds that employees at European firms that invest in training earn 9% more, on average, than their peers at companies that do not prioritise workforce development. Among IT-intensive workers, this wage gap expands to 17%.

 

“Training is seen as a tool for improving employees’ opportunities and working conditions, and for increasing company productivity,” Cecilia Jona-Lasinio said. “The need for training increases with the pace of technological change. With the adoption of new technologies and acceleration of automation, formal education and experience are not sufficient, so new competencies are required.”

 

While previous studies showed 16% of European workers are exposed to skill-displacing technological change, the paper from Jona-Lasinio and Venturini shows that the adverse effects of digitalisation can be tackled at the company level through training policies.

 

The authors analysed data from 112,000 companies, employing between 10 and 999 workers, from twelve European countries, and found that 65% provided general training, with the highest proportions observed in France (84%) and the lowest in Bulgaria (26%). One-third of the companies also offered training in advanced digital skills, with the highest number in the UK, Norway, Germany and Denmark.

 

Data show that firms which invest in training tend to be bigger. The highest wages are paid by organisations where spending on upskilling is the highest, and where the largest share of the workforce is trained. In terms of the type of training, i.e. internal or external offered by a specialised institution, the combination of both yields the best results, as it gives employees a mixture of company-specific skills and more general ones.

 

“On an individual level our study shows that people who want to earn more should be ready for lifelong learning, and search for employers who offer training,” says Francesco Venturini. “Our study also suggests that the wage differences across firms might widen if laggard companies were unable to systematically organise training. We should keep this in mind when designing policies on innovation and support for companies.”

 

Jona-Lasinio, C. and Venturini, F. (2023), “On-the-job training, wages and digitalisation: evidence from European firms”, International Journal of Manpower, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJM-10-2022-0469

You can also access the paper here.

 

 

Ursula Holtgrewe (ZSI) discussed two case studies conducted within Project UNTANGLED that looked into how the introduction of innovative solutions impacts workers. An electronics manufacturer introduced an aspirational model of self-governance, whereas a testing, inspection and certification company implemented a top-down digitalisation initiative. In both cases, changes were ambiguous: worker participation did not include all groups of workers and came with some work intensification, and digitalisation led to some job losses and an enhanced work-life balance. In neither case, unions had a part in implementing the changes. Holtgrewe highlighted the need for further research on technology’s impact on the workplace that pays attention to the broader context of markets, management, and historical factors.

 

The webinar “Harnessing the Benefits of AI, Industry 5.0, and Other Digital Innovations – More Opportunities but Also More Challenges for Social Innovations?” was organised by the European School of Social Innovation (ESSI) and chaired by Antonius Schröder (TU Dortmund University). It took place on 19 October, with around 20 researchers and representatives of social partners taking part.

 

Ursula Holtgrewe presentation is available here.

 

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.