The Interactions Between Digitalization, Innovation and Employment in European Companies: Insights from a Latent Class Analysis

There is increasing concern regarding the association between technological change and jobs. This study explores how different patterns of digitalization and innovation relate to job creation in European companies. We use data from the European Company Survey 2019 collected by Eurofound and Cedefop. We apply Latent Class Analysis (LCA) to identify the typologies of companies, mainly based on their level of technology adoption, innovation practices and employment patterns. We showcase four distinct classes of companies: moderate adoption of digital technology and strong international orientation, traditional and local, medium digitalization, process innovative with local focus and digital leaders and innovators, with specific patterns regarding digitalization, innovation and job creation. The digital leaders and innovators class revealed a high level of digitalization and innovation and maintained stable employment levels, with increased investments in staff training and tendency towards automation. Conversely, less-digitalized traditional companies are more susceptible to stagnation or employment decline. In general, the employment outlook is stable, without significant employment growth, signaling the need for balanced investments in innovation and digitalization that stimulate more and better jobs. This is the first study to apply LCA to explore complex relationships between digitalization, innovation, foreign trade, training investments and employment trends and offers fresh insights into company views towards employment in the digital era.