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The Complexity Premium

Author

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  • Fuchs, Johann
  • Gersbach, Hans
  • Schmassmann, Samuel

Abstract

We introduce a task-based framework for modeling production in which certain tasks are too complex for many workers to perform. In such an environment, workers’ wages may significantly diverge from their relative productivities: Workers with marginally higher skill levels may obtain a large additional wage premium on top of the skill premium, which we call complexity premium. We apply our framework to explain past employment and wage polarization and estimate model parameters for the U.S. labor market between 2001 and 2019. Beyond a rising skill level and skill premium, we find that the complexity of tasks increases and employees performing more complex tasks earn a significant complexity premium, which accounts for up to 43 percent of their wages. Finally, we explore the effects of artificial intelligence and find it may aggravate wage inequality, with an ambiguous effect on complexity premia.

Suggested Citation

  • Fuchs, Johann & Gersbach, Hans & Schmassmann, Samuel, 2025. "The Complexity Premium," CEPR Discussion Papers 20290, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20290
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    File URL: https://cepr.org/publications/DP20290
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    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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