## How Pandemic Accelerated Digital Transformation in Advanced Economies

_IMF Blog, March 21, 2023_

## Source details

**Canonical URL:** [How Pandemic Accelerated Digital Transformation in Advanced Economies](https://www.imf.org/en/blogs/articles/2023/03/21/how-pandemic-accelerated-digital-transformation-in-advanced-economies)

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## Bibliographic details
- Authors: Florence Jaumotte, Myrto Oikonomou, Carlo Pizzinelli, Marina M Tavares
- Published: March 21, 2023

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### Overview
- Digital technologies shielded labor and productivity from the pandemic and accelerated adoption in lagging countries, but digitalization gaps persist.
- The analysis focuses on digitalization measured by the share of workers using a computer connected to the internet and documents implications for productivity and labor markets.

### Digitalization trends and cross-country/sector patterns
- Pre-pandemic variation:
  - Sweden: more than four-fifths of workers had computers with internet access in 2019.
  - Greece: less than two-fifths of workers had computers with internet access in 2019.
- Pandemic-era changes:
  - Greek share surged almost 8 percentage points, to 45 percent.
  - Across advanced economies, digitalization increased by an average of 6 percentage points.
- Sector and firm-size patterns:
  - Digitalization has historically been lower in contact-intensive sectors.
  - Small businesses tend to lag larger counterparts; small firms enjoyed the biggest gains during the pandemic.
  - Example cross-sector gap: Greek restaurants and hotels trail Sweden’s by 38 percentage points.
  - Sectors that are least digitalized invested more in digitalization during the pandemic.

### Productivity impacts
- Measures used:
  - Labor productivity: output per hours worked.
  - Total factor productivity: output relative to total inputs used in production.
- Protective effects during the pandemic:
  - High levels of digitalization helped shield productivity and employment from the shock.
  - The most digitalized industries experienced significantly smaller losses in labor productivity and hours worked than less digitalized sectors.
  - At the depths of the pandemic in 2020, higher digitalization in a sector reduced labor productivity losses by a sizable 20 percent when comparing the 75th and 25th percentiles of digitalization.
  - Counterfactual impact: had less-digitalized economies matched the 75th percentile in the sample for each sector, aggregate labor productivity growth during the pandemic would have been a quarter higher.
- Emerging firm-level divergence:
  - Evidence for larger firms shows a growing total factor productivity differential between high- and low-digitalized firms as the crisis drew to a close.
- Uncertainty:
  - It is too soon to assess longer-term effects, but digitalization clearly helped boost productivity, protect employment, and mitigate disruptions during the pandemic.

### Labor markets and remote work
- Concerns and observed dynamics:
  - Initial policy concern: greater digitalization could widen job market inequality by increasing demand for higher-skilled workers and displacing low- and medium-skilled workers.
  - Observation: digital occupations were more shielded from layoffs than non-digital ones during the crisis, but there is little evidence so far of a structural shift in the composition of labor demand toward digital occupations.
  - Vacancies data (from a September working paper) showed a strong increase in the demand for less-skilled workers as the economy started to recover.
- Working-from-home (WfH) revolution:
  - Prior to the crisis, only 5 percent of workers typically worked from home in Europe.
  - By 2021 that had topped 16 percent.
  - Countries with more common WfH saw larger increases in labor force participation, suggesting WfH may attract more workers:
    - Netherlands: over 20 percent of workers usually work from home; participation has already surpassed pre-crisis levels.
    - Italy: less than 10 percent of workers work from home; participation remains below pre-pandemic trends.
  - Welfare and environmental effects:
    - WfH can generate significant welfare gains by reducing commutes and increasing time management flexibility.
    - WfH can boost attachment to the labor market and the labor supply, while supporting the environment by reducing commuting.

### Policy implications and recommendations
- Policymakers should seize the moment to continue closing digitalization gaps and ensure gains are broadly shared.
- Recommended actions include:
  - Promoting policies that maintain healthy competition in digital markets.
  - Adapting labor laws and regulations to facilitate remote work.
- Objective:
  - Build a more resilient and adaptable economy better prepared to navigate future crises.

*Source: How Pandemic Accelerated Digital Transformation in Advanced Economies (IMF blog, March 21, 2023).*

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## References

- [staff discussion note](https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2023/03/13/Digitalization-During-the-COVID-19-Crisis-Implications-for-Productivity-and-Labor-Markets-529852)
- [working paper](https://www.imf.org/en/Publications/WP/Issues/2022/09/23/Did-the-COVID-19-Recession-Increase-the-Demand-for-Digital-Occupations-in-the-United-States-523606?cid=em-COM-123-45414)
- [Longji Li](https://www.imf.org/en/Publications/Publications-By-Author?author=Longji+Li&name=Longji+Li)
- [Andrea Medici](https://www.imf.org/en/Publications/Publications-By-Author?author=Andrea+Medici&name=Andrea+Medici)
- [Ippei Shibata](https://www.imf.org/en/Blogs/authors?author=Ippei+Shibata)
- [Jiaming Soh](https://www.imf.org/en/Publications/Publications-By-Author?author=Jiaming+Soh&name=Jiaming+Soh)

_Source: https://www.imf.org/en/blogs/articles/2023/03/21/how-pandemic-accelerated-digital-transformation-in-advanced-economies_