Effects of digital innovation on income inequality among different workforces: evidence from Chinese industries

Abstract

ABSTRACT To understand the impact of digital innovation on the workforce and its role in achieving common prosperity, this paper uses data from Chinese A-share listed companies during 2006–2021 to investigate the effects of digital innovation on income inequality among different industry-level groups. We find that digital innovation significantly reduces income inequality among employees across industries, but it does not significantly impact income inequality within management groups. Through mechanistic analysis, we find that digital innovation decreases income inequality among ordinary employees whose incomes are closely linked to company performance and thereby for the entire workforce by narrowing the income gap across industries. However, as digital innovation does not significantly influence evaluation systems (e.g. educational degrees) for management income, it does not contribute to reducing income inequality among managerial levels. These findings provide valuable insights to develop policies for common prosperity.