Employment in the digital economy: Role of artificial intelligence and technological innovation

In the age of the digital economy, technological advancements are reshaping labor markets, creating both new opportunities and challenges. However, the impact of digitalization, particularly the roles of artificial intelligence (AI) and technological innovation (TI), on employment remains insufficiently examined. This study examines the effect of the digital economy on employment in 36 OECD countries from 2005 to 2022, focusing on the moderating roles of AI and TI, using the Driscoll-Kraay Standard Errors (DKSE) model and various robustness tests. The findings show that: (1) the digital economy enhances employment, with a stronger effect at lower employment quantiles; (2) AI and TI strengthen the digital economy's impact, although AI's direct effect is negative, while innovation's effect is positive; (3) the digital economy increases employment through political, economic, and social globalization; (4) sectoral analysis reveals that the digital economy reduces jobs in agriculture while boosting those in the service sector, and has a positively insignificant effect on the industrial sector; and (5) heterogeneity analysis indicates that the digital economy's benefits are more pronounced in highly developed, industrialized, and less urbanized countries. The study emphasizes the need for tailored policies to maximize the benefits of digitalization, address the challenges posed by AI, and ensure sustainable and equitable labor market growth.