Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

Abstract: How do new technologies affect economic growth and the skill premium? To answer this question, we analyze the impact of industrial robots and artificial intelligence (AI) on the wage differential between low-skill and high-skill workers across 52 countries using counterfactual simulations. In so doing, we extend the nested CES production function framework of Bloom et al. (2025) to account for cross-country income heterogeneity. Confirming prior findings, we Show that the use of industrial robots tends to increase wage inequality, while the use of AI tends to reduce it. Our contribution lies in documenting substantial heterogeneity across income groups: the inequality-increasing effect of robots and the inequality-reducing effects of AI are particularly strong in high-income countries, while they are less pronounced among middle- and lower-middle income countries. In addition, we show that both technologies boost economic growth. In terms of policy recommendations, our findings suggest that investments in education and skill-upgrading can simultaneously raise average incomes and mitigate the negative effects of automation on wage inequality.

Keywords: Skill Premium, Automation, Industrial Robots, Artificial Intelligence

JEL-codes: J31; O14 August 2025

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