AI's Impact on Europe's Job Market: A Call for a Social Compact

The European Union must urgently address AI’s profound impact on employment, income, and social cohesion by forging a dedicated “AI Social Compact”.

https://www.socialeurope.eu/ais-impact-on-europes-job-market-a-call-for-a-social-compact



While the societal ramifications of artificial intelligence are just beginning to emerge, the European Union’s current policy approach appears ill-equipped to anticipate the forthcoming significant disruption to the labour market. Over the past year, Brussels has predominantly concentrated on balancing the regulation of AI’s risks with accelerating its adoption. However, it has largely overlooked the deeper structural impacts this technology will have on jobs, income security, and territorial cohesion. As the European Commission now shapes its long-term agenda, particularly with the initial presentation of its 2028-2034 Multiannual Financial Framework, it is increasingly evident that the social dimension of the AI transition is not yet being treated with the urgency it demands.

AI adoption is progressing rapidly, and the risk of job displacement is swiftly becoming a reality. Historically, all forms of technological innovation have been associated with an “augmentation effect” – the idea that technology enhances worker productivity and creates new roles, often offsetting job losses through increased demand and rising incomes. However, as has been repeatedly observed, this process is neither immediate nor painless and may, in fact, be shifting in this new era of AI adoption. A landmark 2022 study by Nobel laureate Daron Acemoglu and co-authors found that while AI adoption initially boosted AI-related hiring, it soon led to reduced hiring and shifting skill requirements within firms. This provides early evidence that the “substitution effect” may begin to outweigh the “income effect” in AI-exposed sectors. Acemoglu and his co-authors also found, in a separate study, that income inequality has increased as a result of automation, underscoring how unequal and skill-biased the impact of AI is likely to be on the job market.

Since then, generative AI has dramatically accelerated the pace and scale of automation. McKinsey reports that the share of firms using AI in at least one business function rose from 20 percent in 2017 to 78 percent in 2024, driven largely by the explosion in generative AI tools. Adoption of generative AI alone surged from 33 percent to 71 percent between 2023 and 2024. Tools such as ChatGPT, Gemini, and Claude are no longer confined to narrow applications; these models offer firms a comprehensive solution for deploying them in a wide range of basic cognitive tasks with minimal human oversight. While macro-level labour market data in advanced economies is not yet showing widespread signs of an AI-related slowdown, it appears that junior white-collar positions are beginning to feel the pressure. Tech giants including Microsoft, Meta, Apple, Amazon, and Salesforce are either freezing hiring or laying off white-collar workers, particularly young software developers in the UK and US. Specifically, software developer jobs have decreased by 35 percent over the past five years.

The Looming Unemployment Shock

However, especially in Europe, it is clear that this is only the beginning. In May, Dario Amodei, CEO of Anthropic, issued a stark warning: generative AI models like those his company develops could eliminate up to half of all entry-level white-collar jobs and push unemployment up by 10 to 20 percent within just one to five years. Despite the urgency of this projection, it appears to be largely unheeded. So far, very little is being done to prepare for a transformation that, even in its most conservative estimate, would lead to an unemployment shock not seen since the height of the eurozone crisis, when joblessness in the euro area peaked at 12 percent in 2013.

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