The Impact of Intelligent Development on Income Inequality and Human Capital Allocation

The advent of intelligent development has resulted in a significant widening of the income gap. The introduction of automation has made it possible to completely replace low-skilled labor, leading to a decrease in demand for such labor and a corresponding rise in demand for high-skilled labor. This trend has contributed to the widening of the income gap between individuals possessing different skill sets. However, it is important to note that a certain degree of income inequality can serve as a motivating factor for workers to upgrade their skills and enhance their productivity. Research has demonstrated that the effectiveness of input and output incentive schemes is dependent on relative rather than absolute levels, and that wage differentials can have a positive impact on both profits and average wages (Lazear, 2018). Furthermore, the income gap can facilitate the flow of human capital, particularly in cases where excessive income inequality leads to the outflow of low-skilled labor. This can help to address the issue of misallocation of human capital. As such, we propose hypothesis 3.