Artificial Intelligence and the Skill Premium

Abstract

How will the emergence of ChatGPT and other forms of artificial intelligence (AI) affect the skill premium?To address this question, we propose a nested constant elasticity of substitution production function that distinguishes among three types of capital: traditional physical capital (machines, assembly lines), industrial robots, and AI.Following the literature, we assume that industrial robots predominantly substitute for low-skill workers, whereas AI mainly helps to perform the tasks of high-skill workers.We show that AI reduces the skill premium as long as it is more substitutable for high-skill workers than low-skill workers are for high-skill workers.