AI innovation and the labor share in European regions

Antonio Minniti, Klaus Prettner and Francesco Venturini

European Economic Review, 2025, vol. 177, issue C

Abstract: This paper examines how the development of Artificial Intelligence (AI) affects the distribution of income between capital and labor, and how these shifts contribute to regional income inequality. To investigate this issue, we analyze data from European regions dating back to 2000. We find that for every doubling of regional AI innovation, the labor share declines by 0.5% to 1.6%, potentially reducing it by 0.09 to 0.31 percentage points from an average of 52%, solely due to AI. This new technology has a particularly negative impact on high- and medium-skill workers, primarily through wage compression, while for low-skill workers, employment expansion induced by AI mildly offsets the associated wage decline. The effect of AI is not driven by other factors influencing regional development in Europe or by the concentration of the AI market.

Keywords: Artificial Intelligence; Patenting; Labor share; European regions; Inequality (search for similar items in EconPapers)
JEL-codes: O31 O32 O34 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:177:y:2025:i:c:s0014292125000935

DOI: 10.1016/j.euroecorev.2025.105043

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