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AI Innovation and Labor Market Polarization: Evidence from European Regions

Author

Listed:
  • Antonio Minniti

    (Department of Economics, University of Bologna)

  • Klaus Prettner

    (Department of Economics, Vienna University of Economics and Business)

  • Francesco Venturini

    (Department of Economics, University of Urbino)

Abstract

We study whether AI innovation changes labor-market polarization by weakening the relative position of high-skilled workers. We develop a CES production framework showing how AI affects the wage-cost ratio between high- and low skilled workers through wage and employment margins. We test the model's predictions using European regional labor-market data and find that AI reduces the relative wage-cost ratio by nearly 7 percent on average, with effects broadly split between wage and employment adjustments. These results are primarily driven by regions in countries highly specialized in AI technologies. Overall, our evidence suggests that AI may counteract the polarization effects associated with over two centuries of technological change.

Suggested Citation

  • Antonio Minniti & Klaus Prettner & Francesco Venturini, 2026. "AI Innovation and Labor Market Polarization: Evidence from European Regions," Department of Economics Working Papers wuwp400, Vienna University of Economics and Business, Department of Economics.
    • Handle: RePEc:wiw:wiwwuw:wuwp400
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    More about this item

    Keywords

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    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

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