Digital Transformation and Human Capital in Europe’s Twin Transition: Sectoral Pathways to Productivity and Greenhouse Gas Intensity

Abstract

The twin transition combines digital transformation and the green transition and is a core pillar of the European agenda for the Digital Decade. This study examines how digital transformation and digital human capital relate to labor productivity and greenhouse gas (GHG) intensity across European industries. We compile a country–sector dataset covering 26 European Union Member States and ten NACE A*10 sectors for 2023 using harmonized Eurostat sources. We employ a path-analytic framework based on composite indicators to assess direct, indirect, and context-dependent associations among digital transformation, digital human capital, labor productivity, and environmental performance. The results indicate a positive association between digitalization and digital human capital. While digital skills are positively related to labor productivity, their mediating role between digitalization and labor productivity appears limited. The available evidence also suggests that artificial intelligence plays only a small moderating role in the relationships analysed. On the environmental side, higher levels of digitalization and digital skills are associated with a slight reduction in GHG intensity, although effects are modest and display sectoral heterogeneity. Overall, the findings provide disciplined empirical evidence that can inform discussions on policies and strategies aimed at fostering a competitive, digitally advanced, and lower-emissions economy in the European Union.