Does Technological Advancement Widen Income Inequality? Evidence From the Impact of Generative Artificial Intelligence on the Internal Pay Gap Within Enterprises

ABSTRACT We investigate the intra‐firm distributional effects of generative artificial intelligence. We use the release of ChatGPT‐3.5 as an exogenous shock to Chinese A‐share listed firms from 2018 to 2023 and estimate a difference‐in‐differences framework. We measure firm‐level technological exposure through textual analysis of corporate business scopes. The shock widens the internal pay gap between management and ordinary employees. Structural decomposition reveals what drives this result. The divergence comes from an increase in the efficiency‐based pay gap, not from managerial rent‐seeking. Generative artificial intelligence acts as a cognitive complement to management, raising marginal productivity through both technological innovation and improved operational performance. The internal pay gap widens as a result. The effect is most pronounced in large‐scale enterprises and in firms where employees have limited bargaining power. Our findings provide micro‐level empirical evidence for task‐based displacement theory. Institutional frictions, we show, shape how the gains from generative artificial intelligence are distributed within the firm.