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AI innovation and the labor share in European regions

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  • Minniti, Antonio
  • Prettner, Klaus
  • Venturini, Francesco

Abstract

This paper examines how the development of Artificial Intelligence (AI) affects the distribution of income between capital and labor, and how these shifts contribute to regional income inequality. To investigate this issue, we analyze data from European regions dating back to 2000. We find that for every doubling of regional AI innovation, the labor share declines by 0.5% to 1.6%, potentially reducing it by 0.09 to 0.31 percentage points from an average of 52%, solely due to AI. This new technology has a particularly negative impact on high- and medium-skill workers, primarily through wage compression, while for low-skill workers, employment expansion induced by AI mildly offsets the associated wage decline. The effect of AI is not driven by other factors influencing regional development in Europe or by the concentration of the AI market.

Suggested Citation

  • Minniti, Antonio & Prettner, Klaus & Venturini, Francesco, 2025. "AI innovation and the labor share in European regions," European Economic Review, Elsevier, vol. 177(C).
    • Handle: RePEc:eee:eecrev:v:177:y:2025:i:c:s0014292125000935
    DOI: 10.1016/j.euroecorev.2025.105043
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    Keywords

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    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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