Can artificial intelligence shrink the wage gap while silently widening the wealth divide?
The article titled AI Adoption and Inequality by Emma Rockall, Marina Tavares, and Carlo Pizzinelli, published as an IMF Working Paper in April 2025, investigates the complex relationship between artificial intelligence (AI) and economic inequality. The authors draw on UK household-level data and a general equilibrium task-based model to explore how AI, unlike previous automation waves, disproportionately affects high-income workers. The research contends that while automation traditionally displaced routine low-wage labor and increased both wage and wealth inequality, AI might reduce wage inequality by targeting high-wage, cognitive-intensive jobs. Yet, paradoxically, it could worsen wealth inequality. This stems from the fact that high-income individuals often possess larger capital assets and their occupations are more complementary to AI, which could enhance their productivity and financial gains despite potential wage losses.
The authors extend an existing model by Moll et al. (2022) to analyze the effects of AI adoption. Their empirical findings from the UK’s Wealth and Assets Survey show that high-income workers are more exposed to AI technologies and are also better insulated from job displacement due to their wealth portfolios and the nature of their work. When firms can choose how much AI to adopt, wealth inequality worsens significantly due to the strong incentives to automate costly, high-wage tasks.
To explore policy implications, the authors incorporate endogenous AI adoption decisions into their model and simulate outcomes under different redistributive scenarios. They find that a 15% capital tax could reduce post-transfer inequality but would also substantially lower overall output and average wages. This highlights a tough trade-off between equity and efficiency for policymakers. The study ultimately reveals that while AI holds productivity promise, its distributional consequences are deeply contingent on who adopts the technology and how it complements or displaces human labor.