Automation, Digitalization, and Income Inequality in Europe

We analyze the impact of industrial robots as well as investment in computing equipment and digital technologies on different indicators of income distributions. Our data covers selected West European EU economies from 2004 to 2017. We try to shed light on the underlying dynamics of technological advances on inequality. The results suggest that robot density is associated positively with income inequality, while no robust evidence is found for the computing equipment and digital technologies. In particular, the income shares of the bottom 20 and 50 percent decreases with automation, while the income shares of the top 10 and 1 percent increases, which supports the job and wage polarization hypothesis. This is especially important for policy formulations after the pandemic, because current rapid automation efforts can potentially have significant long-term implications for the labor market.