AI innovation linked to a shrinking share of income for European workers

New analysis of regional data across Europe indicates that advances in artificial intelligence are moving income away from labour and towards capital, raising concerns about deepening economic divides

Rising adoption of artificial intelligence across Europe has coincided with a measurable decline in labour’s share of total income, new research suggests.

A study from the Vienna University of Economics and Business found that regions with higher levels of AI innovation tend to see weaker wage and employment growth for workers, especially in medium- and high-skill roles.

The analysis by Klaus Prettner, Professor of Macroeconomics at WU Wien, and his co-authors, suggests that every doubling of regional AI innovation corresponds to a 0.5% to 1.6% drop in the share of income accruing to workers.

Across European regions, observed levels of AI activity since 2000 explain up to 0.31 percentage points of the overall decline.

According to the researchers, the change is driven mainly by weaker wage growth and deteriorating employment conditions among high-skill workers, while wage compression among medium- and low-skill groups plays a smaller role.

The results indicate that the distributional effects of AI differ from common expectations within the labour market.

Gains from AI have flowed disproportionately to capital owners, with workers facing an erosion of income shares and increased pressure on job security in certain occupations, it found.

Without policy intervention, continued technological progress risks deepening regional and social divides across Europe as the distributional effects of AI reshape labour markets, it adds.

The findings, published in the European Economic Review, come amid wider European debates over automation, productivity growth and the future of high-skill employment.

Speaking yesterday, Professor Prettner said: “This study challenges the wide-held assumption that AI benefits skilled workers the most. Instead, it reveals that AI-driven automation often substitutes for cognitive tasks typically performed by medium- and high-skill workers, reducing their wage growth and their job security. By contrast, low-skill workers, though facing lower wages, may see modest gains in employment due to demand for roles that are difficult to substitute by AI systems.”

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