Technological change and the new working poor: digitalisation, inequality and welfare institutions in Europe

This paper examines the relationship between technological change, digitalisation, and social exclusion in European labour markets, with a specific focus on in-work poverty and inequality. While technological innovation and digitalisation are widely regarded as key drivers of productivity growth and economic development, a growing body of evidence suggests that their distributive effects are highly uneven and strongly mediated by institutional contexts. Building on the literature on skill-biased and task-biased technological change, the paper adopts a political economy perspective that emphasises the interaction between technological dynamics, labour market structures, and welfare state arrangements. Using harmonised Eurostat data for a broad set of European countries, the analysis provides descriptive evidence on cross-country heterogeneity in in-work poverty, innovation intensity, digitalisation, and welfare-related dimensions. The findings highlight that higher levels of innovation and digitalisation are not systematically associated with lower in-work poverty and that similar technological profiles can coexist with markedly different distributive outcomes. Educational gradients in poverty and social exclusion further indicate that technological change disproportionately affects low- and middle-skilled workers, reinforcing labour market polarisation. Overall, the evidence suggests that technological progress alone is insufficient to ensure inclusive labour market outcomes. The social consequences of digitalisation depend critically on labour market institutions and welfare systems’ capacity to translate productivity gains into income security. These findings raise important questions about the need for welfare state adaptation in the context of technologically transforming labour markets, particularly in countries characterised by segmented employment structures.