Artificial intelligence and the skill premium
This addresses the economic problem of wage inequality for policymakers and economists, but it is incremental as it builds on existing models to analyze AI's specific effects.
The paper investigates the impact of AI, like ChatGPT, on the skill premium by developing a production function that separates industrial robots and AI, showing that AI reduces the skill premium when it is more substitutable for high-skill workers than low-skill workers are for high-skill workers.
What will likely be the effect of the emergence of ChatGPT and other forms of artificial intelligence (AI) on the skill premium? To address this question, we develop a nested constant elasticity of substitution production function that distinguishes between industrial robots and AI. 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.