Navigating Technological Change: The Role of Passive Social Policies in Central and Eastern European Labour Markets

Central and Eastern European (CEE) countries have limited research attention regarding the impact of technological change on the labour market. While existing studies offer many insights into developed countries, research on CEE countries, which have not yet achieved the level of prosperity seen in Western nations, does not take into consideration the following paradox – the existing labour force deficit and lack of technological innovation at the same time. This makes the region particularly valuable for the analysis in the context of technological change. Our study expands current theoretical understanding of the relationship between technological change and employment by examining the effects of passive labour market policies. The empirical analysis, using fixed-effects models, reveals that the overall effect of digitalization on employment is inconsistent, suggesting that the direct relationship between ICT capital and employment is not robust across specifications. This may result from the balancing of both positive and negative effects of technological change on the labour market. However, three models find a positive and statistically significant moderating effect of social protection benefits, while two showed insignificant estimates. This suggests that higher social protection can help mitigate digitalization’s negative employment effects by sustaining demand and supporting jobs in non-automated sectors.