Digital Innovation Is Reshaping Jobs, Not Eliminating Them

When it comes to AI and IT technologies in general, very few topics are as hotly debated as their effect on employment.

In part, this is because previous waves of technological innovation have destroyed entire professions (candle makers, horse-drawn carriage drivers, and phone operators, for example), making that fear rational. The investing pitch from many AI companies to replace workers with cheaper AI and talk of the upcoming need for universal income to deal with mass unemployment did not help either.

Another reason is that the effect of IT on employment is not very clear. For every bookseller losing their job to Amazon (AMZN ), there is potentially a digital marketer, programmer, or YouTuber made possible by the same technology.

A recent study by Chinese researchers at Nanjing University of Finance and Economics and Shandong Technology and Business University explores the effect of enterprise digital innovation on employment.

They found that the effect is unequal depending on the type of company, its position in its life cycle, and its ownership structure.

“While it fosters certain dimensions of employment expansion, it also triggers significant structural shifts that reshape competitive dynamics. The employment-promoting effects are more pronounced during firms’ growth and maturity stages, rather than the startup phase, and are significant for non-state-owned enterprises and competitive industries”

They published their findings in the Journal of Innovation & Knowledge¹, titled “The digital innovation dilemma: A double-edged sword for employment and competitiveness”.

Defining Digital Innovation

The researchers viewed digital technology and innovation broadly, not merely as technology adoption but as a process in which data elements are the core drivers of production.

“The profound integration of digital technologies such as artificial intelligence (AI), big data analytics, cloud computing, and the Internet of Things into an enterprise’s products, processes, and/or business models, which fundamentally alters the production function and generates novel value.”

At the micro level, digital innovation can reshape production and corporate competitive strategies.

At the macro level, it facilitates the economy’s structural transformation from traditional industry to a digital economy, making it vital for future national economic development.

The country where this study was conducted, China, is particularly attentive to the topic, as illustrated in China’s 14th Five-Year Plan for the Deep Integration of Informatization and Industrialization, covering topics like 5G deployment, big data, smart networks, and Digital Silk Road projects.

“The Chinese Central Government’s 2024 Report on the Work of the Government underscores the imperative to actively promote the digitalization of industries and industrial digital innovation, while fostering the deep integration of digital technology with the real economy.”

With an annual influx of over 10 million university graduates, providing high-level employment opportunities in the country is also a political and social priority.

This is why massive investment in infrastructure like 5G, data centers, and fiber optic networks has been made, lowering the overall cost of digital applications.

Digital Innovation And Employment

Conflicting Effects

Digital innovation can be used to substitute for labor, reducing its demand.

At the same time, digital innovation can lower production costs and product prices, enabling firms to expand their production scale and labor demand. This can also spawn entirely new industrial chains and emerging employment opportunities.

So the net impact of enterprise digital innovation on total employment depends on the balance between job displacement and job creation.

Regarding the newest iteration of digital technologies, AI and robotics, evidence points to the fact that they compress employment by substituting for routine tasks, while also creating new roles such as data analysis and algorithm design.

Gathering The Right Data

The study used a sample of Chinese A-share listed companies from 2010 to 2024, obtaining the companies’ financial data from the China Stock Market & Accounting Research (CSMAR) database. They also used city-level data sourced from the China City Statistical Yearbook. This ultimately yielded 35,604 observations from 4,631 firms.

As a robustness test, the researchers repeated their analysis after excluding Chinese municipalities and observations from the COVID-19 period between 2020 and 2022. They treated municipalities separately because their comparatively advanced public digital infrastructure could give local companies an unusual advantage. The principal employment result remained statistically significant after these observations were removed.

They measured  six indicators:

• Technological innovation.
• Business innovation.
• Process innovation.
• The level of AI investment.
• R&D expenditure.
• The proportion of digital intangible assets.

They used these data to construct a composite digital innovation index designed to measure the breadth and depth of the enterprise’s digital innovation. Finally, they calculated the firm-level net employment growth.

Different Effects for Different Companies

Companies’ Age

The researchers split the companies into 3 age categories since founding:

• 0–8 years, startup stage.
• 9–15 years, the growth stage.
• Over 15 years, the maturity stage.

They found that for enterprises in the growth and maturity stages, digital innovation has a significant promotional effect on employment, while the effect is insignificant for startup enterprises.

It is likely that startup-stage companies have limited R&D resources, so these enterprises cannot make greater innovation investments or expand their innovation boundaries.

Companies Structure

The researchers also found significant differences exist between state-owned enterprises (SOEs) and non-SOEs / private companies.

Digital innovation on non-SOEs’ employment growth was significantly positive at the 5% level, whereas it was insignificant for the SOE sample.

A likely possibility is that non-SOEs tend to focus more on using digital innovation to enhance market competitiveness and obtain direct economic returns, which sustain corporate growth and generate demand for labor.

In contrast, for SOE managers, stability takes precedence over corporate efficiency and profitability, and it is difficult for SOEs to reduce redundant staff in the short term.

Industrial Sector

Lastly, a net difference was seen between companies in monopolistic industries and competitive industries.

Monopolistic industries cover sectors where a few actors tend to dominate or are mandated by law, such as fossil fuels, electric and heat power, water, railway transport, air transport, railway, ship, aerospace, telecommunication, etc.

Competitive industries are considered to be all the non-monopolistic industries.

Digital innovation’s impact on employment growth in monopolistic industries is insignificant, whereas digital innovation significantly promotes increased employment in competitive industries.

The reason seems to be that, as market demand is relatively stable for monopolistic industries, in these sectors corporate digital innovation is used to reduce costs and increase efficiency. Meanwhile, competitive industries face different situations and goals:

“Digital innovation for enterprises in competitive industries is to innovate business models, explore new markets, expand innovation boundaries, and enhance corporate sustainable development capabilities; therefore, their effect on promoting employment is significant.”

Across the companies studied, enterprise digital innovation significantly promotes increased demand for service industry workers, whereas its impact on labor demand in the agriculture and manufacturing industries is almost nonexistent.

Therefore, service industry employees are more likely to benefit from enterprise digital innovation.

Investors Takeaways

For investors, this study shows that digital innovation, including AI, is able to both reduce and expand employment, depending on how it is deployed, the maturity of a company, its industry, and its ownership structure.

Overall, employment will benefit when digital innovation is deployed in the service sector, in growing or mature companies, and in private companies operating in non-monopolistic sectors.

Conversely, the study did not identify statistically significant overall employment growth attributable to digital innovation among agricultural or manufacturing companies, state-owned enterprises, startups, or businesses in monopolistic industries. This does not necessarily mean that digitalization reduced employment in these groups, only that the researchers could not establish a reliable positive aggregate effect.

This makes sense, as new IT technologies allow established companies to broaden their technological capabilities, enter new markets, and increase overall hiring, while simultaneously replacing routine production, finance, and administrative positions with technical, sales, and other nonroutine roles.

In that context, workforce restructuring is a potential indicator of whether digital investment is producing genuine business expansion rather than functioning solely as a cost-cutting exercise.

Investing In Digital Innovation

While many companies provide AI and digital-transformation technologies, Microsoft (MSFT ) (NASDAQ: MSFT) offers particularly broad exposure to enterprise digitalization through its cloud infrastructure, productivity software, business applications, developer platforms, and AI services.

Microsoft

While many companies are working on AI and digital technologies, when it comes to enterprise-grade software and services, one company is above the others: Microsoft.

A key part is Azure cloud infrastructure and Copilot, which integrate into the preexisting corporate toolkit of Windows, Office365, GitHub, LinkedIn, Outlook, etc.:

• Microsoft 365 and Copilot target productivity and workflow transformation.
• Dynamics 365 supports the digitization of sales, finance, customer service, and operations.
• GitHub provides software-development and AI-assisted coding infrastructure.

This makes Microsoft a leader in AI, including through partnerships to access even more compute and the restarting of nuclear power plants, as well as ethical AI.

The company is also a leader in quantum computing, video game development, scientific AI, etc.

Microsoft therefore provides diversified investor exposure to the infrastructure and software supporting enterprise digital innovation. However, the study did not examine Microsoft or establish that employment expansion among digitally innovative Chinese companies will translate into returns for Microsoft shareholders. The investment thesis instead rests on the company’s position as a major provider of the cloud, AI, productivity, and development tools enabling this broader transformation.

(You can read about the big picture of Microsoft’s many businesses in our investment report dedicated to the company)

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Study Referenced

^{1. Xiaozhong Yang, Jiaqi Du, and Enguang Miao. The digital innovation dilemma: A double-edged sword for employment and competitiveness. Journal of Innovation & Knowledge. 11 August 2026, 101113. https://doi.org/10.1016/j.jik.2026.101113}