The AI revolution with 21st century skills: Implications for the wage inequality and technical change

Abstract

We construct a three-level constant elasticity of substitution production model. Labour is split into three components: (i) low-skilled labour, (ii) high-skilled labour with a traditional education background, and (iii) high-skilled labour with an AI-based education background. Rising use of automation in production will cause a rise in the skill premium (wages of both types of high-skilled workers relative to low-skilled workers) and AI skill premium (wages of high-skilled labour with an AI-based education relative to those with a traditional education background). Dependent on the value of the elasticity, automation may favour high-skilled workers with an AI-based education background.