Digital accounts and employment in Taiwan's banking sector: Disruption or realignment?

This study examines how digitalization, proxied by the adoption of digital accounts, affects labor demand in Taiwan's banking sector. Using bank-level panel data from 2016 to 2023 and a two-step System-GMM framework, we analyze both absolute employment levels and banks' relative employment shares within the financial industry. The results show that growth in digital accounts is robustly associated with reductions in total and frontline employment, consistent with labor-saving digital substitution. In contrast, banks' relative employment shares display strong persistence and do not respond significantly to digital-account penetration once dynamic employment inertia is taken into account. This distinction helps reconcile economically meaningful employment reductions with limited short-run labor reallocation across banks. Heterogeneity analyses indicate that employment contractions are concentrated among lower-educated workers, while employment of highly educated staff remains relatively stable, implying compositional upgrading of the workforce. These effects are more pronounced among large banks and those affiliated with financial holding companies. Additional analyses suggest that improvements in lending-related productivity represent an important channel linking digitalization to labor reductions. Evidence from difference-in-differences designs, employment growth regressions, and instrumental-variable approaches corroborates the baseline findings. Overall, the results suggest that digital banking reshapes labor demand primarily through gradual contractions in absolute employment rather than immediate shifts in relative employment shares, with important implications for workforce planning and regulatory policy during ongoing digital transformation in banking.