From Code to Cash: The Impact of AI on Wages

Artificial Intelligence (AI) can perform cognitively demanding tasks with more autonomy than previous technologies and is thus expected to have disruptive effects on labor markets. But empirical evidence is limited. Does AI already affect workers’ wages? And how exactly does AI diffuse through labor markets? To answer these questions, we combine novel job vacancy data from Germany with high-quality administrative data and contribute three main findings.

First, using an IV approach, we find that a 10% increase in demand for AI skills implies average AI-induced wage returns of 2%. Second, we identify three key drivers behind our results and find that 95% of AI-induced wage effects are attributed to: (1) Employer Quality, (2) Socioeconomic, and (3) occupational characteristics. Third, we explore mechanisms, suggesting that the primary beneficiaries of AI demand are male workers with: (i) only modest AI exposure, (ii) college education, (iii) 50+ years of age, (iv) occupational mobility, and (v) employment at high-quality firms. Our paper provides valuable insights for policymakers by identifying early winners and losers of growing AI diffusion and offers promising avenues for future research.

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