AI raises average wages by 21% and substantially reduces' wage inequality, researchers find

Artificial intelligence "substantially reduces wage inequality while raising average wages by 21 percent," according to a new working paper co-authored by an assistant professor at Stanford University. 

The paper released this week by Lukas Althoff, titled "Task-Specific Technical Change and Comparative Advantage" and written alongside Hugo Reichardt, an affiliated professor at the Barcelona School of Economics, said that, "Artificial intelligence is changing which tasks workers do and how they do them." 

"Predicting its labor market consequences requires understanding how technical change affects workers’ productivity across tasks, how workers adapt by changing occupations and acquiring new skills, and how wages adjust in general equilibrium. We introduce a dynamic task-based model in which workers accumulate multidimensional skills that shape their comparative advantage and, in turn, their occupational choices," it said. 

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"We use the quantified model to study generative AI’s impact via augmentation, automation, and a third and new channel — simplification — which captures how technologies change the skills needed to perform tasks. Our key finding is that AI substantially reduces wage inequality while raising average wages by 21 percent," the researchers write. 

"AI’s equalizing effect is fully driven by simplification, enabling workers across skill levels to compete for the same jobs. We show that the model’s predictions line up with recent labor market data," they added. 

White House AI and cryptocurrency czar David Sacks said on X that the findings are a "narrative violation." 

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The researchers said simplification brought on by the use of AI "increases the relative productivity of lower-skill workers in tasks and occupations that were previously the territory of higher skilled workers." 

"This lowering of skill-based barriers is the key force reducing inequality," they said. 

"Second, we find that AI generates sizable welfare gains for almost all workers at labor market entry. We estimate welfare improvements equivalent to permanent wage gains of 26–34% for most workers," the paper continues. 

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"Our third key finding is that AI’s impact — together with workers’ responses to it — significantly alters the occupational landscape. AI generates a large reallocation of employment across occupations," they also said. "For example, administrative occupations (e.g., financial clerks) see a large decline in employment, while science occupations (e.g., life scientists) expand. On average, wages rise, but some occupations — such as architects, engineers, and executives — see absolute wage declines. In many cases, the occupations that experience the largest employment gains are also those for which relative wages decrease the most."