Unslicing the pie: AI innovation and the labor share in European regions

Antonio Minniti, Klaus Prettner and Francesco Venturini (francesco.venturini@uniurb.it)

Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics

Abstract: We study how the development of Artificial Intelligence (AI) influences the distribution of income between capital and labor and how this, in turn, exacerbates geographic income inequality. To investigate this issue, we first build a theoretical framework and then analyze data from European regions dating back to 2000. We find that for every doubling of regional AI innovation, there is a 0.7% to 1.6% decline in the labor share, which may have decreased by between 0.20 and 0.46 percentage points from a mean of 52% due solely to AI. This new technology is particularly detrimental to high-skill and medium-skill labor. The impact on income distribution is driven by worsening wage and employment conditions for high-skill labor, and by wage compression for medium- and low-skill labor. The effect of AI is not driven by other factors affecting regional development in Europe, nor by the concentration process in the AI market.

Keywords: Artificial Intelligence; patenting; labor share; European regions (search for similar items in EconPapers)
JEL-codes: O31 O32 O34 (search for similar items in EconPapers)
Date: 2024-10
New Economics Papers: this item is included in nep-ain, nep-eec, nep-ino, nep-sbm and nep-tid
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Working Paper: Unslicing the pie: AI innovation and the labor share in European regions (2024)
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