Digitalization’s presumed role in bolstering companies and industries during crises is widely accepted. However, a study conducted by the Research Institute for Sustainability (RIFS) challenges this assumption by examining data encompassing various socio-economic indicators before and after the COVID-19 crisis.
Surprisingly, the findings reveal that in certain cases, industries with lower levels of digitalization displayed greater resilience. One possible explanation for this unexpected outcome is the pandemic-related support provided by the German government.
Economic resilience
In 2020, the global outbreak of the SARS-CoV-2 virus resulted in a 3.5% year-on-year decline in global economic activity. Germany, too, witnessed a decline in key economic indicators across all sectors during the crisis, although the impact was not evenly distributed.
These divergences in sectoral resilience have ignited debates regarding the potential advantages of digitalization for the economy, particularly through automation and remote work. Consequently, calls to embrace digitalization more extensively have been made.
Nonetheless, the recent study carried out by the RIFS researchers demonstrates that the relationship between the digital intensity of sectors and their economic performance during the pandemic is far from straightforward. Limited evidence exists for this period concerning the socio-economic performance and digital intensity of different sectors.
Sectoral differences
To uncover disparities in socio-economic resilience to the COVID-19 crisis between highly and less digitalized industry sectors in Germany, the researchers meticulously analyzed sectoral stock market performance, gross value added (GVA), and sectoral employment data. These datasets were subsequently linked with information pertaining to the digital intensity of various sectors in Germany during 2020.
Contrary to the hypothesis that highly digitalized sectors consistently exhibited greater resilience in the face of the COVID-19 crisis, the researchers’ analysis does not unequivocally confirm this relationship. Sectors with high and medium-high digital intensity did fare better in terms of stock market performance compared to sectors with low and medium digital intensity. However, it is important to note that a high level of uncertainty and stock market volatility detrimentally affects overall economic resilience.
In terms of GVA and employment, less digitalized sectors outperformed their highly and medium-high digitalized counterparts in 2020, with the exception of the information and communication sector. Notably, the data highlights that sectors with low and medium-low digital intensity, such as public administration, education, defense, health, social work, and construction, experienced employment gains during the pandemic.
“These observations led us to the hypothesis that digitalization may not be a silver bullet to achieving social and economic resilience in times of crisis,” the researchers explain.
Policy recommendations
Narrowly focused policies aimed solely at promoting digitalization as a means to mitigate future crises may prove to be misguided. Digitalization, while bringing about changes in job roles that could potentially benefit highly skilled workers and exacerbate wage inequality, also presents ecological risks such as heightened energy and resource consumption.
Therefore, in times of crisis, policy measures should prioritize the enhancement of resilience and the implementation of financial support programs.
These efforts should concentrate on fortifying social and environmental resilience by directing attention toward sectors that foster stability and facilitate a more comprehensive socio-ecological transformation, in line with internationally agreed upon sustainability objectives such as the United Nations Sustainable Development Goals.
