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Impact of artificial intelligence on the labor income distribution: Labor substitution or production upgrading?

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  • Wang, Changlin
  • Jiao, Du

Abstract

The extensive adoption of artificial intelligence (AI) technologies has sparked debates about their impact on labor markets. However, there is still limited empirical evidence on AI's impact on labor income distribution, particularly in emerging economies. While existing research focuses mainly on job displacement risks, few focus on how AI affects labor compensation in corporate settings. This study examines how AI adoption affects labor income share through a mediation analysis framework using a comprehensive dataset of 25,156 firm-year observations from Chinese listed companies (2010–2022). Our findings show that AI implementation positively influences labor income share through two key channels: improved innovation capacity and accelerated technology upgrading. These effects are more pronounced in nonstate-owned enterprises and nonheavy-polluting industries. These results challenge the conventional narrative of technology-driven labor displacement, suggesting that AI adoption, combined with investments in innovation and human capital, can promote a more equitable distribution of corporate income.

Suggested Citation

  • Wang, Changlin & Jiao, Du, 2025. "Impact of artificial intelligence on the labor income distribution: Labor substitution or production upgrading?," Finance Research Letters, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:finlet:v:73:y:2025:i:c:s1544612324017033
    DOI: 10.1016/j.frl.2024.106674
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    More about this item

    Keywords

    Artificial intelligence; Labor income share; Innovation capacity; Technology Upgrading;
    All these keywords.

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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