The European Union must urgently address AI’s profound impact on employment, income, and social cohesion by forging a dedicated “AI 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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Fortunately, this is precisely the opportune moment for the European Union to engage in strategic foresight. As the debate over the 2028–2034 Multiannual Financial Framework is in its infancy and will take years to conclude, policymakers have a critical opportunity to rethink the EU’s long-term strategy, not only to promote AI adoption but also to protect citizens from its disruptive effects. This requires investing not just in innovation and digital infrastructure, but also in the people and regions most vulnerable to automation. We therefore call on the European institutions to establish a European “AI Social Compact”, tied to the European Social Fund, that will align technological progress with labour protections and targeted upskilling. Its objective should be to ensure that the benefits of AI reach citizens across the income distribution and throughout all 27 Member States. The “AI Social Compact” could expand existing instruments, such as the European Globalisation Adjustment Fund for Displaced Workers (EGF), which was granted an annual budget of just €35 million for 2021-2027.
Key Measures for a Socially Responsible AI Transition
At the heart of this compact would be a set of key measures to address the growing risk of job displacement. Firstly, it is essential to design a comprehensive social protection scheme for workers affected by AI-driven changes in the labour market. Job transitions should be supported through income assistance, reorientation, and reskilling opportunities. These reskilling efforts should not focus exclusively on AI-related skills; they must also promote the development of “hybrid intelligence” – broader competencies that are more resilient to future disruptions caused by AI, such as interpersonal, creative, and multidisciplinary skills. This includes jobs such as nurses and plumbers, which Geoffrey Hinton – one of the “Godfathers of AI” – has identified in an interview as among the most secure. To ensure these programmes reflect labour market needs, a structured dialogue among Member States and social partners will be essential. Existing EU initiatives, such as the AI Continent Action Plan and the ARISA project, primarily focus on developing AI skills to accelerate adoption. However, treating reskilling solely as a means to promote AI uptake may prove counterproductive when considering its potential impact on job displacement.
In parallel, the European Union must develop an industrial policy that strengthens its competitiveness in the race for AI supremacy. Strategic investments in AI infrastructure and foundational research will be essential. One key lesson from the implementation of NextGenEU is that collective European action yields greater impact than fragmented national approaches and has positive spillover effects. A JRC report estimates that economic spillovers from the Recovery and Resilience Facility amount to €345.5 billion, accounting for about 40 percent of its total impact. Moreover, large-scale AI infrastructure (data centres and computing facilities) presents a unique opportunity to reinforce both competitiveness and cohesion. Because these technologies are relatively location agnostic, they can be strategically placed in regions that have historically been left behind in the digital transition. This would allow the EU to direct new high-value investments into areas that previously lacked the conditions to host major innovation projects, while also helping to reduce economic disparities across Member States.
The Imperative for Collective Action
The current debate on the EU’s Multiannual Financial Framework for 2028 to 2034 offers a revealing glimpse into the Union’s preparedness for the social consequences of AI. If the first year of Ursula von der Leyen’s second term is any indication, the Commission appears unwilling or unprepared to rise to the scale of the challenge. Despite growing public expectations and expanding policy responsibilities, the Multiannual Financial Framework proposal does not call for a meaningful increase in the Union’s financial capacity. More worryingly, it signals a shift away from coordinated EU-level action in favour of nationally fragmented spending.
This move risks weakening one of the Union’s most essential principles: its capacity to act collectively in the face of shared challenges. Renationalising investment decisions during a period of rapid technological change would undermine the EU’s ability to deliver timely and coordinated responses. Artificial intelligence is set to reshape labour markets unevenly, deepening inequalities between regions and sectors with varying capacities to adapt. Without strong EU-level instruments to guide social investment, support job transitions, and ensure inclusive AI adoption, the transformation will be more disruptive and its costs more unevenly distributed. While responsibility spans all levels of governance, only the European Union can respond at the necessary scale and speed.
Although the EU has moved quickly to become one of the first major AI regulators, existing frameworks fall short and are increasingly being called into question. The AI Act protects against harmful uses of AI at work, and the AI Continent Action Plan promotes adoption and skills development. But neither addresses the core challenge of job displacement. Without a dedicated strategy to manage AI’s labour market impact, the EU risks losing control of the transition. A European AI Social Compact, anchored in the next Multiannual Financial Framework, is urgently needed to protect workers, support regions, and ensure that no one is left behind in the age of artificial intelligence.
Federico Pozzi is an AI Governance specialist at Intellera Consulting. He supports public sector organisations in the responsible adoption of AI, through the design of governance models and the development of effective policy.
Pietro Valetto is a doctoral researcher in the Herman Deleeck Centre for Social Policy at the University of Antwerp. He studies asset poverty and wealth inequality across the European Union and the United States.
Elizabeth Kuiper is Associate Director and Head of the Social Europe and Well-being programme at the European Policy Centre in Brussels.