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Big Data and Inequality

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  • Carl-Christian Groh

Abstract

This paper studies the distributional consequences of the increasing importance of (big) data in modern economies. I consider a simple theoretical model in which firms produce output using capital and labor. Firms can hire labor on the spot market, but must choose their capital stock for a given period in advance and under uncertainty regarding their future profitability. Access to data resolves this uncertainty, thereby primarily increasing the aggregate demand for and the remuneration of capital. Furthermore, the increased demand for capital crowds out labor demand by reducing the price of the output goods, which reduces aggregate labor income. By an analogous logic, the rising availability of data can also increase the skill premium, given that firms can adjust their unskilled labor input more easily than their skilled labor input.

Suggested Citation

  • Carl-Christian Groh, 2024. "Big Data and Inequality," CRC TR 224 Discussion Paper Series crctr224_2024_555, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2024_555
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    More about this item

    Keywords

    inequality; big data; uncertainty; wages;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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