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

2026-07-01

AI Summary

This study addresses the growing concern that rapid advances in artificial intelligence (AI) exacerbate income inequality, underscoring the need to clarify AI’s economic effects and design effective redistribution policies. The authors develop a dynamic general equilibrium model that systematically distinguishes three labor types: AI-complementary workers, those displaced by AI, and workers employed solely in final-good production. They compare economic dynamics under competitive versus monopolistic AI production regimes. The analysis reveals that AI monopolies slow technological diffusion and intensify inequality. However, targeted taxation and regulatory interventions can achieve more equitable welfare outcomes across different market structures, offering a viable path toward Pareto improvements.

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.

Problem

• AI inequality
• wage disparity
• labor reallocation
• monopoly vs competition
• economic impact of AI

Innovation

• AI productivity
• labor reallocation
• wage inequality
• market structure
• optimal policy