|Type of paper:||Research paper|
Accelerating artificial intelligence (AI) capabilities will enable automation of some tasks that have long required human labor.1 These transformations will open up new opportunities for individuals, the economy, and society, but they have the potential to disrupt the current livelihoods of millions of Americans. Whether AI leads to unemployment and increases in inequality over the long-run depends not only on the technology itself but also on the institutions and policies that are in place. This report examines the expected impact of AI-driven automation on the economy, and describes broad strategies that could increase the benefits of AI and mitigate its costs.
Economics of AI-Driven Automation
Technological progress is the main driver of growth of GDP per capita, allowing output to increase faster than labor and capital. One of the main ways that technology increases productivity is by decreasing the number of labor hours needed to create a unit of output. Labor productivity increases generally translate into increases in average wages, giving workers the opportunity to cut back on work hours and to afford more goods and services. Living standards and leisure hours could both increase, although to the degree that inequality increases-as it has in recent decades-it offsets some of those gains.
AI should be welcomed for its potential economic benefits. Those economic benefits, however, will not necessarily be evenly distributed across society. For example, the 19th century was characterized by technological change that raised the productivity of lower-skilled workers relative to that of higher-skilled workers. Highly-skilled artisans who controlled and executed full production processes saw their livelihoods threatened by the rise of mass production technologies. Ultimately, many skilled crafts were replaced by the combination of machines and lower-skilled labor. Output per hour rose while inequality declined, driving up average living standards, but the labor of some high-skill workers was no longer as valuable in the market.
In contrast, technological change tended to work in a different direction throughout the late 20th century. The advent of computers and the Internet raised the relative productivity of higher- skilled workers. Routine-intensive occupations that focused on predictable, easily-programmable tasks-such as switchboard operators, filing clerks, travel agents, and assembly line workers- were particularly vulnerable to replacement by new technologies. Some occupations were virtually eliminated and demand for others reduced. Research suggests that technological innovation over this period increased the productivity of those engaged in abstract thinking, creative tasks, and problem-solving and was therefore at least partially responsible for the substantial growth in jobs employing such traits. Shifting demand towards more skilled labor raised the relative pay of this group, contributing to rising inequality. At the same time, a slowdown in the rate of improvement in education, and institutional changes such as the reduction in unionization and decline in the minimum wage, also contributed to inequality- underscoring that technological changes do not uniquely determine outcomes.
Today, it may be challenging to predict exactly which jobs will be most immediately affected by AI-driven automation. Because AI is not a single technology, but rather a collection of technologies that are applied to specific tasks, the effects of AI will be felt unevenly through the economy. Some tasks will be more easily automated than others, and some jobs will be affected more than others-both negatively and positively. Some jobs may be automated away, while for others, AI-driven automation will make many workers more productive and increase demand for certain skills. Finally, new jobs are likely to be directly created in areas such as the development and supervision of AI as well as indirectly created in a range of areas throughout the economy as higher incomes lead to expanded demand.
Recent research suggests that the effects of AI on the labor market in the near term will continue the trend that computerization and communication innovations have driven in recent decades.
Researchers' estimates on the scale of threatened jobs over the next decade or two range from 9 to 47 percent. For context, every 3 months about 6 percent of jobs in the economy are destroyed by shrinking or closing businesses, while a slightly larger percentage of jobs are added- resulting in rising employment and a roughly constant unemployment rate. The economy has repeatedly proven itself capable of handling this scale of change, although it would depend on how rapidly the changes happen and how concentrated the losses are in specific occupations that are hard to shift from.
Research consistently finds that the jobs that are threatened by automation are highly concentrated among lower-paid, lower-skilled, and less-educated workers. This means that automation will continue to put downward pressure on demand for this group, putting downward pressure on wages and upward pressure on inequality. In the longer-run, there may be different or larger effects. One possibility is superstar-biased technological change, where the benefits of technology accrue to an even smaller portion of society than just highly-skilled workers. The winner-take-most nature of information technology markets means that only a few may come to dominate markets. If labor productivity increases do not translate into wage increases, then the large economic gains brought about by AI could accrue to a select few. Instead of broadly shared prosperity for workers and consumers, this might push towards reduced competition and increased wealth inequality.
Historically and across countries, however, there has been a strong relationship between productivity and wages-and with more AI the most plausible outcome will be a combination of higher wages and more opportunities for leisure for a wide range of workers. But the degree that this materializes depends not just on the nature of technological change but importantly on the policy and institutional choices that are made about how to prepare workers for AI and to handle its impacts on the labor market.
Technology is not destiny; economic incentives and public policy can play a significant role in shaping the direction and effects of technological change. Given appropriate attention and the right policy and institutional responses, advanced automation can be compatible with productivity, high levels of employment, and more broadly shared prosperity. In the past, the
U.S. economy has adapted to new production patterns and maintained high levels of employment alongside rising productivity as more productive workers have had more incentive to work and more highly paid workers have spent more, supporting this work. But, some shocks have left a growing share of workers out of the labor force. This report advocates strategies to educate and prepare new workers to enter the workforce, cushion workers who lose jobs, keep them attached to the labor force, and combat inequality. Most of these strategies would be important regardless of AI-driven automation, but all take on even greater importance to the degree that AI is making major changes to the economy.
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