Digitalization redefines work without triggering job collapse

Across Bulgaria, Italy, and the UK, the period of rapid digital diffusion does not coincide with a sharp increase in unemployment. Employment trends remained broadly stable or improved, even as digital tools and automation expanded. This suggests that, at least so far, technological change has not produced mass job destruction at the aggregate leve

European labor markets are undergoing profound change, shaped by demographic pressure, shifting wage structures, rising inequality, and accelerating digital transformation. Yet these forces are not producing uniform outcomes across countries. New research comparing Bulgaria, Italy, and the United Kingdom shows that economic convergence on paper often hides deep divergence in workers’ lived experiences, with wages, labor costs, taxation, and digital readiness interacting in sharply different ways.

The study, titled “Comparative Analysis of Labor Markets in Bulgaria, Italy, and the UK: Wage Dynamics, Labor Costs, and Digital Development,” published in the journal Economies, challenges simple assumptions about economic growth, technological progress, and worker well-being in the era of artificial intelligence and digitalization.

Divergent wage paths reveal uneven convergence

The analysis shows that Bulgaria, Italy, and the United Kingdom occupy very different positions within the European labor market landscape, despite being exposed to similar global shocks and technological trends. Bulgaria represents a fast-converging, low-income economy, Italy a high-income but stagnant labor market, and the UK a mature, high-income system marked by flexibility and inequality.

Bulgaria recorded the strongest wage momentum over the period studied. Nominal wages and hourly labor costs more than doubled, and real wages rose sharply from a low base. At the same time, unemployment fell steadily, dropping below the EU average by the early 2020s. These trends reflect a classic catching-up trajectory, driven by labor shortages, outward migration, and rising productivity in parts of the economy.

However, the study finds that rapid wage growth in Bulgaria has not translated into equitable outcomes. Income inequality remains the highest among the three countries, even after years of economic expansion. A largely flat tax structure and limited redistributive mechanisms mean that market income gains are only weakly redistributed, allowing disparities to persist across regions and social groups. As a result, Bulgaria’s labor market is converging in average wages but not in shared prosperity.

Italy presents a completely different picture. Despite its status as a high-income economy, real wages declined over the period analyzed. Nominal pay growth failed to keep pace with inflation, eroding purchasing power for many workers. Labor costs per hour remained above the EU average, driven by a substantial non-wage component that includes social contributions and payroll taxes. These high costs coexist with relatively weak employment performance, with unemployment remaining above EU levels for most of the period.

Yet Italy’s inequality outcomes differ markedly from Bulgaria’s. A strongly progressive tax and transfer system dampens income disparities, keeping inequality close to the EU average despite weak wage dynamics. The study highlights this as a key policy trade-off: redistribution can stabilize inequality but cannot compensate indefinitely for stagnating real wages or low productivity growth.

The United Kingdom occupies a third model. It combines high wage levels, low unemployment, and a comparatively light tax burden on labor, especially for low-wage workers. Real wages remained broadly stable rather than strongly rising, and labor costs converged toward EU averages over time. While employment performance was strong, inequality remained relatively high and volatile, reflecting a labor market shaped by flexible contracts, financialized housing markets, and uneven access to wealth accumulation.

Together, these trajectories illustrate that convergence in headline indicators such as GDP or employment rates can mask widening gaps in income security, purchasing power, and inequality.

Labor costs and tax systems shape worker outcomes

Labor cost structures and tax systems play a decisive role in determining how economic growth affects workers. Wages alone do not tell the full story. What employers pay per hour, how those costs are divided between wages and non-wage components, and how income is taxed and redistributed all shape household outcomes.

Bulgaria’s labor costs remain among the lowest in Europe, even after rapid growth. Non-wage costs make up a relatively small share of total labor costs, reflecting low social contributions and payroll taxes. This structure supports job creation and competitiveness but limits the capacity of the tax system to reduce inequality. The result is strong employment performance alongside persistent income gaps.

Italy represents the opposite extreme. Labor costs per hour are high, and non-wage components account for a large and stable share of total costs. This reflects a social model that prioritizes worker protection and redistribution. However, high labor costs can discourage hiring and investment, contributing to elevated unemployment and weak wage growth. The study shows that Italy’s tax and transfer system successfully moderates inequality but does so in a context of limited real income growth.

The UK’s labor cost model sits between these two extremes. Non-wage costs are lower than in Italy, and the tax wedge on labor is consistently lighter, particularly for low-income workers. This supports employment and flexibility but leaves inequality more exposed to market forces. State transfers mitigate some disparities, especially for families with children, but overall inequality remains higher than in the EU average.

The research underscores that no single labor market model dominates across all dimensions. Each configuration involves trade-offs between competitiveness, equity, and income growth. Policies that succeed in one area often generate pressure in another, and these tensions are becoming more pronounced as economies adapt to digital change.

Digitalization advances without triggering job collapse

Public debate often frames digital transformation as a threat to employment, raising fears of widespread job losses. The evidence presented in this research paints a more nuanced picture.

Across Bulgaria, Italy, and the UK, the period of rapid digital diffusion does not coincide with a sharp increase in unemployment. Employment trends remained broadly stable or improved, even as digital tools and automation expanded. This suggests that, at least so far, technological change has not produced mass job destruction at the aggregate level.

However, the study finds that digital readiness varies sharply across countries and does not align neatly with income levels. Bulgaria, despite starting from a low digital base, made rapid progress in closing its digital gap with the EU average. Investments in connectivity, basic skills, and digital public services helped accelerate convergence. Yet these gains did not automatically reduce inequality or regional disparities, highlighting that digital catch-up alone is not sufficient to ensure inclusive growth.

Italy followed the opposite trajectory. Despite its higher income level, it fell behind the EU average in digital development over time. The research links this to uneven adoption of digital technologies across firms and regions, reinforcing long-standing north–south divides. In this context, digitalization risks amplifying existing structural weaknesses rather than driving broad-based productivity gains.

The UK, while not fully comparable in EU digital indices after Brexit, is characterized by high digital capability and early adoption of platform-based work and algorithmic management. These features support employment flexibility and innovation but also contribute to labor market segmentation and income volatility. Digital advancement, in this case, coincides with persistent inequality rather than shared gains.

The main effects of digitalization appear to be distributional rather than purely employment-related. Who benefits from productivity gains, how bargaining power shifts, and which regions and sectors attract investment matter more than aggregate job counts. Digital technologies interact with existing labor market institutions, amplifying strengths and weaknesses rather than overriding them.