Although digitalisation and automation will lead to moderate employment growth in Germany until 2021, they are also likely to increase income inequality among employees. Contrary to widespread public perception, technological change creates more jobs than it destroys. What is of central importance, however, is not so much the number of jobs affected as the structural change in the labour market, which is taking place as digitalisation and automation progresses. Policymakers can counter this development by making it easier for companies to provide employees with appropriate training and further education.

Digitalisation and automation are likely to increase income inequality
Investments in digital and automated work processes lead to job growth in Germany.

These are the findings of a research paper produced by researchers of the ZEW – Leibniz Centre for European Economic Research in Mannheim and the Institute of Labor Economics (IZA) in Bonn. In their paper, the authors have simulated various possible consequences of digitalisation for the German labour market. The analyses are based on the representative IAB-ZEW Working World 4.0 Survey conducted by ZEW in cooperation with the Institute for Employment Research (IAB) among some 2,000 companies in the manufacturing and services sector. The survey includes companies that have already invested in cutting-edge technologies between 2011 and 2016. The ZEW paper has now examined how the German economy and labour market will react to the implementation of these new technologies in the future.

The results show that companies’ plans to continue investing in digital and automated work processes in the future will have a slightly positive effect on employment in Germany, leading to a total job growth of 1.8 per cent in the period from 2016 to 2021. However, this increase does not result from rising demand for companies’ products. In fact, new technologies in companies tend to have a complementary rather than a substituting effect on the workforce, meaning that, “as digitalisation and automation progresses, companies are more likely to need and hire additional staff to introduce new technologies than to reduce staff numbers,” explains Dr. Ulrich Zierahn, researcher in the ZEW Research Department “Labour Markets and Human Resources” and co-author of the paper.

“The widely predicted mass unemployment due to technological change is therefore unlikely to occur,” says Zierahn. Structural change in the labour market will therefore be reflected not so much in the number of jobs that are created or lost as in the individual tasks of workers.

Digitalisation and automation exacerbate income inequality

According to the researchers, jobs that require a high level of interactive and analytical skills have less automation potential than jobs that are mainly routine-based. On average, more complex tasks are often better paid than routine jobs. Accordingly, the researchers find that workers with very good education and wage levels are more likely to benefit from technological change than workers with medium to low education and wage levels. “Digitalisation and automation exacerbate income inequality on the German labour market,” says Ulrich Zierahn.

The simulations in the paper also indicate that promoting labour mobility, i.e. the targeted training and further education of employees, can contribute to cushioning the effects of the forthcoming structural change. According to the authors of the ZEW-IZA paper, companies, workers and policymakers should therefore invest more in further training; firstly, to prepare workers for the changes on the labour market and, secondly, to ensure that companies find sufficient skilled workers. In addition, measures are needed to ensure that small and medium-sized enterprises are not falling behind.

“German companies are currently in the process of making investments. A certain amount of time is needed before new technological developments become established in everyday operations and increase productivity. Of course, this process is cost-intensive. Policymakers can provide support with targeted measures and thus help companies to remain competitive in the long run,” concludes Ulrich Zierahn.




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