The role of government digitization in the labor market: mechanisms, heterogeneity and moderators

Purpose Against the backdrop of global digital transformation and rising unemployment, this study aims to explore the under-researched link between government digitization and unemployment. Design/methodology/approach Using 2002–2023 panel data from 134 countries, a fixed-effect model examines the link between government digitization and unemployment. Robustness checks validate results, followed by four fixed-effect models with interaction terms to analyze mechanisms. Heterogeneity analysis explores differential impacts on different labor groups, and group tests assess moderating effects of economic freedom, industrial upgrading and ruling ideology. Findings Government digitization reduces unemployment overall. While it can increase unemployment by cutting public-sector jobs (i.e. the employment substitution effect), it can curb unemployment by reducing enterprises’ non-productive expenses, alleviating financing constraints and decreasing economic policy uncertainty (i.e. the employment facilitation effect). Heterogeneous impacts on different labor groups and moderating effects of economic freedom, industrial upgrading and ruling party ideology are identified. Originality/value Unlike previous studies that treat digitization as a general economic phenomenon, this study isolates government digitization and uncovers its dual effects on unemployment: both reducing and increasing it through multiple mechanisms. This study further examines the heterogeneous effects of government digitization across labor groups and explores how national characteristics moderate its influence on unemployment. These findings offer new empirical evidence for the rationality of government digital transformation and provide practical guidance for countries addressing unemployment.