DIGITALISATION AND EUROPEAN WELFARE STATES. BLUEPRINT SERIES 30. Bruegel

Petropoulos, Georgios and Marcus, J. Scott and Moës, Nicolas and Bergamini, Enrico (2019) DIGITALISATION AND EUROPEAN WELFARE STATES. BLUEPRINT SERIES 30. Bruegel. [Policy Paper]

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Abstract

Rapid technological progress and innovation can destroy jobs. This is not a new concern. Throughout history, with a great speeding-up during the Industrial Revolution, automation of production processes has led to efficiency gains and to the displacement of labour. But history has also shown that, in the longer run, gains in efficiency pay off and new jobs are created. Overall the balance has been broadly positive. Currently, in the post-crisis European Union, employment rates are high, signalling good news for the bloc’s welfare states, which largely rely on taxes and levies on employment for their funding. But the past is not necessarily a guide to the future. The unprecedented digitalisation of our economies continues. Artificial intelligence has become a reality and machines are able learn how to outperform humans in some cognitive tasks. Once again, workers fear their jobs will be lost to machines, and the digital revolution has still to play out, meaning their fears cannot be dismissed. The way work is performed is also changing, with jobs allocated via online platforms and people matched to tasks in a way that means they are neither fulltime employees, nor self-employed workers in the traditional sense. This all has practical implications for welfare states. The European Union, where welfare-state spending is a substantial part of the economy, faces the major challenge of redefining the nature and functioning of its welfare states in the context of the fundamental changes brought about by digitalisation, artificial intelligence and the changing status of workers. EU policymakers must find answers to pressing questions: if technology has a negative impact on labour income, how will the welfare state be funded? How can workers’ welfare rights be adequately secured? A team of Bruegel scholars, with the support of the Mastercard Center for Inclusive Growth, has taken on these questions. They find that the risk digitalisation poses to jobs should not be overstated. For sure, it will change the nature of work, but will lead to the reallocation of workers from existing jobs and tasks to new ones, with the potential for an overall positive effect. However, the share of national income going to labour appears to be falling and the funding of welfare systems needs to be rethought. EU countries will have to make critical choices about their welfare systems in the next few years. This volume will help them to focus on the core issues.

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