Research pick: Closing the European digital divide - "Impact of digitalisation on labour productivity in the EU"

Research in the International Journal of Business Innovation and Research has looked at the relationship between digitalisation and labour productivity in the European Union. The study found that the growing digital divide between some countries means that the impact of technological transformation on productivity is far from uniform.

Giuseppe Cinquegrana of the Italian National Institute of Statistics in Rome, and Giovanni De Luca, Paolo Mazzocchi, Claudio Quintano, and Antonella Rocca of the University of Naples Parthenope, Italy, looked at 23 EU member states over a five-year period and found that digital advancements, such as internet connectivity, digital skills, and the adoption of new technologies, can have different effects around the EU.

Broadly speaking, digitalisation has a positive effect on productivity. However, this study shows that the benefits are most pronounced in countries that already have high levels of digitalisation, such as those in Northern Europe. Nations like Sweden and Denmark, with good digital infrastructure and a highly skilled workforce, experience the biggest productivity gains as digitalisation spreads. The relationship can be measured using the European Commission’s Digital Economy and Society Index, which tracks the progress of digital transformation, and gross domestic product per worker, a standard measure of productivity.

However, the study also reveals a more nuanced picture than is obtained from that data. It suggests that the impact of digitalisation on productivity is not immediate or even implicit. The team found that countries with better education systems and more extensive technological adoption are more likely to see digitalisation pay off in terms of higher productivity.

The findings reveal a stark north-south digital divide within the EU. Southern and Eastern European countries, in particular, lag behind their Northern counterparts in both digitalisation and productivity levels. This gap is further exacerbated by factors like lower investment in research and development and the presence of smaller, less innovative businesses. In these regions, the lack of resources to train workers in digital skills and the relatively low rate of technology adoption in businesses continue to hinder productivity growth. In highlighting this divide, the work offers the opportunity for policymakers to endeavour to close this digital divide.

Cinquegrana, G., De Luca, G., Mazzocchi, P., Quintano, C. and Rocca, A. (2024) ‘Impact of digitalisation on labour productivity in the EU’, Int. J. Business Innovation and Research, Vol. 35, No. 6, pp.1–39.