Digital economy and wage gap between high- and low-skilled workers

Abstract

This paper explores the impact of digital economy development on the wage gap between high- and low-skilled workers based on the China Family Panel Studies (CFPS) database in 2010–2020. The research results suggest that the higher the level of digital economy development, the larger the wage gap between high- and low-skilled workers. Some mediating mechanisms are identified and tested from the perspectives of the reaction of human labor to the development of digital economy: the labor misallocation and the mismatch between technologies and skills of workforce. The latter is represented by the response of workers to the risk of being replaced by machines, implying that high-skilled workers use the Internet to improve their abilities more than their low-skilled counterparts to cope with the substitution effect brought about by digital economic progress. The findings in this paper have important policy implications in the sense that governments at different levels should play an important role in assisting digital economy development in favor of the social disadvantaged groups, particularly the low-skilled workers in the labor market.