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Digitalization, Wage Inequality, and Employment

Author

Listed:
  • Yi Lee

    (Department of Economics, National Tsing Hua University, Hsinchu, Taiwan.)

  • Chu Ping Lo

    (Department of Agricultural Economics, National Taiwan University, Taipei, Taiwan.)

Abstract

This paper presents a simple model demonstrating how digitalization drives inter-industry resource reallocation, shifting from low digital-intensive industries to high digital-intensive industries. While digitalization substitutes work ers, it also lowers productivity thresholds, enabling less productive firms to overcome entry barriers, thereby increasing sectoral employment - a phenomenon more pronounced in high digital-intensive sectors. Consequently, digitalization might raise employment in high digital-intensive sectors without contributing to sectoral wage inequality. Empirical testing of Taiwan’s city-level data from 2001 to 2019 supports our predictions, showing that both digitalization and digital infrastructure are associated with increased firm turnover, higher employment, elevated wages, and reduced wage inequality.

Suggested Citation

  • Yi Lee & Chu Ping Lo, 2026. "Digitalization, Wage Inequality, and Employment," Annals of Economics and Finance, Society for AEF, vol. 27(1), pages 61-89, May.
    • Handle: RePEc:cuf:journl:y:2026:v:27:i:1:leelo
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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