While digital transformation provides new momentum for high-quality development, it may also raise income distribution issues. Based on the data of Chinese A-share listed companies from 2010 to 2020, this paper uses Python machine learning and text analysis to describe the degree of firm digital transformation, discusses the impact of digital transformation on wage growth, and focuses on the income gap across firms. It also discusses the industry-leading effect of “Lighthouse Factory” that have completed digital transformation.

This paper finds that: First, digital transformation significantly raises firm wage, and this increase is more pronounced in non-state-owned firms, low industry monopolies, and labor and knowledge-and-technology intensive industries. Second, there is a shift in the overall effect of digital transformation on wage growth, and the productivity effect and market competition effect brought by the maturity of digital transformation promote wage growth more than the suppression effect brought by the labor substitution effect, which constitutes the main cause of wage growth. Third, digital transformation not only widens the skill income gap within firms, but also widens the income gap between firms in the same industry by increasing the degree of industry monopoly. Fourth, although the “Lighthouse Factory” results in the partial transfer of high-skill labor and capital elements from other firms in the same industry, it helps to improve the minimum productivity of the industry, reduce the productivity gap between firms, and promote the overall improvement of the wage level of firms in the industry. The findings provide an empirical basis for promoting digital transformation and preventing the widening of income gap.

This paper contributes to the existing literature in three ways: First, it attempts to examine the effect of digital transformation on wage growth from the micro perspective of firms, and further explores the effect of digital transformation on the income gap between different firms within the same industry. Second, it explains the labor substitution effect, productivity effect and market competition effect triggered by digital transformation through a task model, and finds that there is some kind of shift in the overall impact of digital transformation under different development stages. On this basis, through the empirical test of endogenous mediating effect model and panel threshold regression model, the impact mechanism of digital transformation on the income gap is explained more comprehensively. Third, it further introduces the list of “Lighthouse Factory” and innovatively explores the leading effect of the first “Lighthouse Factory” that has completed digital transformation on other firms in the industry, broadening the research perspective on the impact of digital transformation on the industry.