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The Economic Benefits and Costs of AI and Policies to Mitigate AI's Impact on Inequality

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  • Matthew O. Jackson
  • Zafer Kanik

Abstract

We examine the economic impact of increasingly productive AI and policies that spread its benefits across the economy. Improvements in AI productivity trigger labor reallocation and changes in absolute and relative wages for different types of labor. Wages of labor that is essential for building AI increase faster than overall GDP. Wages of labor that is substituted for by AI decrease in both absolute and relative terms. Wages of labor that is used only in final goods production and is not displaced by AI increase in line with overall GDP. We contrast the impact of productivity gains depending on whether AI production is competitive or monopolistic. Monopoly production of AI restricts its deployment, slowing the transition and impact of AI. Optimal tax and regulatory policies that achieve Pareto-improvements differ depending on whether there is competition in AI production.

Suggested Citation

  • Matthew O. Jackson & Zafer Kanik, 2026. "The Economic Benefits and Costs of AI and Policies to Mitigate AI's Impact on Inequality," Papers 2607.01101, arXiv.org, revised Jul 2026.
    • Handle: RePEc:arx:papers:2607.01101
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