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How does artificial intelligence shock affect labor income distribution? Evidence from China

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  • Fan, Xiamin
  • Wu, Yuhui
  • Zhou, Yucheng
  • Wu, Shinong

Abstract

Based on the neoclassical growth model and labor-management negotiation framework, we theoretically investigate the impact and mechanism of artificial intelligence (AI) shocks on the labor income share of firms. We then take China's “New-generation Artificial Intelligence Pilot Zone Policy” (AI pilot zone policy) as an exogenous shock and analyze micro-level corporate data. Employing a staggered difference-in-differences model, we find that the AI pilot zone policy significantly increases the labor income share in firms, primarily through the skill demand and skill premium effects. Our results withstand various robustness tests. Furthermore, we observe that the AI pilot zone policy has a more pronounced impact on the labor income share in firms characterized by high labor rigidity, low wage premiums, non-labor-intensive industries, and high-tech sectors.

Suggested Citation

  • Fan, Xiamin & Wu, Yuhui & Zhou, Yucheng & Wu, Shinong, 2025. "How does artificial intelligence shock affect labor income distribution? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:pacfin:v:90:y:2025:i:c:s0927538x25000289
    DOI: 10.1016/j.pacfin.2025.102691
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    Cited by:

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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