## Labor Market and Digitalization in Portugal

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**Canonical URL:** [Labor Market and Digitalization in Portugal](https://www.imf.org/-/media/files/publications/selected-issues-papers/2023/english/sipea2023047.pdf)

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### Aggregate labor market impacts during COVID-19
- Analysis completed on June 1, 2023; paper published as IMF Selected Issues Paper No. SIP/2023/047 (also IMF Country Report No 23/219).
- Aggregate employment and unemployment:
  - Aggregate employment rate declined less and unemployment rate increased less during the COVID-19 recession than in previous recessions (comparison across past recessions, median euro area (EA) country, and the US).
- Labor force participation:
  - Labor force participation rate dropped more sharply during COVID-19 than in the previous two recessions.
  - Declines in participation were largely driven by low-skilled and young workers.
- Time coverage and seasonality:
  - Changes are measured relative to the same quarter in 2019 (2019 chosen as the pre-COVID-19 base year) to address seasonality; results shown up to 2022Q2.

### Distributional impacts across worker and job types
- Young and low-skilled workers:
  - Share of young workers (age 15-29) employment in total employment (among 15-64) declined by around 1.1 percentage points between 2020Q1 and 2020Q2.
  - Share of low-skilled workers (below tertiary education) employment in total employment declined by around 1.6 percentage points between 2020Q1 and 2020Q2.
- Contact-intensive sectors:
  - Contact-intensive employment (Construction; Trade; Transport; Accommodation and Food; Education; Health; Arts; Other Services) declined by around 1.0 percentage point in its share of total employment between 2020Q1 and 2020Q2.
- Gender:
  - Portugal did not experience significant differences in changes to male versus female employment levels during COVID-19 (contrast to some other advanced economies).

### Digital versus non-digital employment
- Digital occupation classification and measures:
  - Digital occupations defined using distal scores (weighted averages of scores on (i) knowledge and (ii) work activity related to computers) mapped to ISCO08 one-digit occupation codes; occupations above the median digital score classified as digital.
  - The 50th percentile (median) level of the digital score is 53.
  - ISCO08 one-digit groups classified as digital: (i) managers, (ii) professionals, (iii) technicians and associate professionals, (iv) clerical support workers.
  - ISCO08 one-digit groups classified as non-digital: (i) service and sales workers, (ii) skilled agricultural, forestry and fishery workers, (iii) craft and related trade workers, (iv) plant and machine operators and assemblers, (v) elementary occupations.
- Portugal-specific dynamics:
  - Share of jobs in digital occupations increased more sharply in Portugal during COVID-19 than in the rest of the EA.
  - Non-digital employment experienced the sharpest drop in its share of total employment in Portugal: around 1.7 percentage points decline in its share of total employment (between 2020Q1 and 2020Q2).
  - Within digital occupations, the rise in Portugal was driven by an increase in the share of “professionals.”
  - In level indices for Portugal (2019Q4 = 100): digital employment increased during COVID-19 while non-digital employment declined.

### Regression evidence on COVID-19 impact on digital employment
- Empirical specification and sample:
  - Regression follows Soh et al. (2022): dependent variable is change in share of digital employment in region m, quarter q, year t relative to same quarter in 2019 (푌풎,풒,풕 − 푌풎,풒,ퟐퟎퟏퟗ).
  - For Europe sample includes 29 countries: Austria, Belgium, Bulgaria, Croatia, Czechia, Denmark, Estonia, Finland, France, Germany, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, United Kingdom.
  - 푪푪풒,풕 is a quarter-year dummy for each post-recession period from 2020Q2 to 2022Q2.
  - COVID-shock measures:
    - For European countries: largest drop in the average of Google mobility indicators in (i) retail and recreation areas and (ii) transit locations in 2020 relative to January 2020 (country-specific).
    - For the U.S.: a Bartik shock is used (details in Soh et al. (2022)); U.S. results normalized to the difference between the 10th and 90th percentiles of the Bartik shock’s distribution across states.
  - Regressions include pre-COVID level of digital employment share to account for pre-existing heterogeneity; U.S. regressions include additional demographic and regional controls and robustness checks (e.g., quit rates from JOLTs).
- Main findings:
  - United States:
    - Regression results indicate a significant and temporary increase in the U.S. digital employment share during the pandemic (coefficients plotted for 2020Q1–2022Q2 show a positive, temporary effect).
    - Additional analysis (Soh et al. 2022) shows both digital and non-digital employment declined in absolute levels in the U.S., but digital employment declined less; increase in digital employment share driven by digital and cognitive occupations rather than digitalization of manual or routine jobs.
  - European countries:
    - The estimated increase in the share of digital employment is small and not statistically significant for the 29-country European sample.
    - Cautions on interpretation:
      - Sample size of 29 countries (cross-country analysis) vs. state-level U.S. analysis.
      - Widespread deployment of job retention schemes in Europe likely shielded jobs in more affected, often non-digital, occupations and sectors; this may mute observed shifts in digital share.

### Policy implications and recommendations
- Main policy message:
  - Emphasize investment in digitalization and digital skills to build a more resilient labor market in Portugal for future shocks.
- Rationale:
  - COVID-19 aggregate impact on Portugal was milder than previous recessions, but distributional impacts were notable: young and low-skilled workers in contact-intensive and non-digital jobs were disproportionately affected.
  - Digital employment share in Portugal rose more sharply at the onset of COVID-19; regression evidence suggests digital employment was relatively shielded during COVID-19.
  - Policy focus on digital skills and higher education is recommended to mitigate vulnerability of groups more affected by digital transformation and future shocks.
- Supporting indicators:
  - Share of population with tertiary education shown for age groups 25-34 and 25-64 (Eurostat and IMF staff calculations; Figure 5 displays cross-country percentiles and Portugal’s position relative to peers).
  - Digital occupation share of employment (average of 2022Q1 and 2022Q2) displayed across countries to inform policy priorities.

*Prepared by Ippei Shibata; IMF Selected Issues Paper SIP/2023/047, July 2023.*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2023/english/sipea2023047.pdf_