Do recessions accelerate routine-biased technological change in Western Europe?

The decline of routine employment is a well-documented feature of labour markets in high-income economies, commonly attributed to routine-biased technological change (RBTC). This study examines the impact of the Great Recession on RBTC in Western Europe. Leveraging industry-level variations in the severity of the Great Recession in a difference-in-difference analysis, we reveal that employment in routine jobs has increased in industries that were severely affected by the recession, compared to those less affected. Additionally, severely affected industries show a decline in investment and a decrease in routine task content. These findings suggest that the Great Recession led to a slowdown in RBTC - contrasting sharply with evidence from the US, where recessions have accelerated RBTC. We demonstrate that variation in labour market regulation can help explain these differences: routine employment declines more sharply in less regulated labour markets compared to those with stricter regulation, likely because hiring and firing costs decrease more substantially in unregulated labour markets during recessions.