Work

Artificial intelligence and the skill premium

Year: 2025

Type: article

Abstract: How will ChatGPT and other forms of artificial intelligence (AI) affect the skill premium? To address this question, we propose a nested constant elasticity of substitution production function that distinguishes among three types of capital: traditional physical capital (machines, assembly lines), industrial robots, and AI. Following the literature, we assume that industrial robots predominantly substitute for low-skill workers, whereas AI mainly helps to perform the tasks of high-skill workers. We show that AI reduces the skill premium as long as it is more substitutable for high-skill workers than low-skill workers are for high-skill workers.

Source: Finance research letters

DOI: 10.1016/j.frl.2025.107401

Authors: David E. Bloom, Klaus Prettner, Jamel Saadaoui, Mario Veruete

Institutions: Harvard University, Vienna University of Economics and Business, Université Paris 8

Language: English

Topic: Labor market dynamics and wage inequality

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $3,730