Digital innovation and transformation drive the Fourth Industrial Revolution or Industry 4.0, revolutionizing the structure and governance of markets and lead to a significant reconfiguration of work and employment. On the one hand, integrating digital innovations in business strategies is essential to create value. Further, the digital transformation allows deep connection of systems creating seamless digitalized value chains with increased efficiency. On the other hand, though, there may be pressure on social cohesion, since only certain social groups and/or regions and/or countries might be in a position to benefit while others might be left behind. Also, the distribution of the newly created value may be uneven, for example via the potential erosion of the tax base due to fewer taxable jobs, or due to the fact that digital platforms and transaction risk to be elusive to taxation. Thus, the digital transformation of the industry puts serious challenges to the European economies and social welfare models. In order to support an informed debate on how to address these challenges,  we will introduce scenarios reflecting different labor and taxation policy options, analyzing the impact on economic growth, jobs and social cohesion of Europe’s economies and societies.