The two faces of digitalization: dimension-specific panel evidence from post-2004 EU labor markets

Purpose This article examines how different dimensions of digitalization are associated with unemployment in the post-2004 EU member states, focusing on the heterogeneous channels through which digital transformation influences labor market performance. Design/methodology/approach The analysis applies panel regression to annual data for the period 2016–2023, modeling unemployment as a function of the four dimensions of the Digital Economy and Society Index (DESI) alongside relevant macroeconomic and structural controls, with lagged specifications. Findings The findings indicate that digital public services are associated with lower unemployment, while digital technology integration is associated with higher unemployment with a time lag, reflecting short-term labor-market adjustment processes. Practical implications The results suggest that institutional digitalization can deliver labor market benefits. In contrast, firm-level digital adoption and upskilling require complementary policies to manage adjustment frictions and support labor reallocation. This underlines the importance of sequencing digital transformation policies to balance efficiency gains with labor market stability. Originality/value This paper provides novel econometric evidence on the differentiated and dynamic associations between digitalization and unemployment in post-2004 EU economies by distinguishing between contemporaneous and lagged impacts across digitalization dimensions.