The Diffusion of Artificial Intelligence: Implications for Wages and Employment

Authors – Eduard Storm, Myrielle Gonschor.

Abstract :

This paper documents the diffusion of Artificial Intelligence (AI) across German firms and explores the resulting effects on wages and employment. Drawing on novel job vacancy data with access to original texts, we employ natural language process techniques to identify AI demand based on firm’s skill requirements. We find the share of firms demanding AI skills has increased from 3% in 2017 to 4.8% in 2021 with substantial heterogeneity subject to firm characteristics, job location, and industry. Subsequently, we link our AI measures to administrative data to study the impact of rising AI demand on local employment and wages. We find no effects on employment. Yet, a 10 pp. increase in AI demand is associated with a wage increase of 1%. Contrary to previous automation technologies, our findings suggest AI has stronger wage than employment effects.