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What Are Labor Economists Saying About AI?

July 12, 2023

“Mankind is solving its economic problem. I would predict that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is to-day,” wrote John Maynard Keynes, one of the most influential economists ever, in a 1930 essay entitled “Economic Possibilities for our Grandchildren”.

Indeed, after the Second World War, the West entered a golden age of economic growth. But this was not Keynes’ boldest claim.

Writing at the beginning of the Great Depression, the economist continued to predict that technological advancement and the accumulation of capital would lead to people working less and having more time for leisure.

“We shall endeavour to spread the bread thin on the butter-to make what work there is still to be done to be as widely shared as possible. Three-hour shifts or a fifteen-hour week may put off the problem [of feeling the urge to work] for a great while,” Keynes wrote.

Though the vast majority of the labor force would prefer devoting most of their time to endeavors other than work and sleep, such as art, sports, games, or family time, this is—contrary to Keynes’ prediction—not the case.

The fifteen-hour workweek remains a distant dream. Capital accumulation has contributed to increasing inequality, and while technological innovation has certainly improved the quality of life for all, it has not led the workforce to freedom from the shackles of wage labor.

Artificial intelligence (AI) has the potential to revolutionize the way we work, but it also carries significant risks and dangers. Can AI lead labor closer to Keynes’ dream of a life of leisure? Or will it, like many technological advances before it, lead to an increasing quality of life yet riddled with widening inequality and characterized by the prevalence of preventable phenomena such as poverty, famine and malnutrition, and underfunded public services?

According to the 2022 World Inequality Report, the Middle East and North Africa (MENA) region is the most unequal. AI’s effects will therefore be doubly important for the region, allowing MENA to leapfrog into the future or exacerbate the maladies of the past—or something in between.

What, then, are labor economists saying about AI’s effects on labor, capital, and the economic system at large?

Effect on Labor and Productivity

The foremost concern when it comes to AI is how it would affect people’s jobs. There are concerns about AI replacing human jobs, and there are hopes of AI making work easier and creating jobs. Both aspects are valid, and possible—different economists have different points of view on the matter.

Typically, new technological advances eliminate ‘medium skill’ jobs and preserve ‘low skill’ and ‘high skill’ ones.

About 300 million jobs could be automated, according to a 2023 Goldman Sachs report.

“Using data on occupational tasks in both the US and Europe, we find that roughly two-thirds of current jobs are exposed to some degree of AI automation, and that generative AI could substitute up to one-fourth of current work. Extrapolating our estimates globally suggests that generative AI could expose the equivalent of 300mn full-time jobs to automation,” the report says.

However, the use of the US and Europe as a dataset must be treated with caution, as it is possible that other regions have a higher concentration of labor on tasks that cannot be currently automated, or the opposite. Nevertheless, the effect of AI in the medium and long term will remain significant in all cases, even if adoption is slower or the impact is less than what is stated.

Goldman Sachs remains optimistic, however, claiming that gains in productivity and new employment as a result of AI will be a net positive.

“The good news is that worker displacement from automation has historically been offset by creation of new jobs, and the emergence of new occupations following technological innovations accounts for the vast majority of long-run employment growth,” the report notes.

“The combination of significant labor cost savings, new job creation, and higher productivity for non-displaced workers raises the possibility of a productivity boom that raises economic growth substantially, although the timing of such a boom is hard to predict,” the report adds.

Goldman Sachs economists estimate that “AI could eventually increase annual global GDP by 7 percent.”

Positive Possibilities

There is early evidence that AI both helps productivity and can be cause for erasing jobs.

In a working paper — yet to be peer reviewed — MIT economists Shakked Noy and Whitney Zang observe that generative-AI based writing tools, like ChatGPT, increase “the output quality of low-ability workers while reducing their time spent, and it allows high-ability workers to maintain their quality standards while becoming significantly faster.”

“At the aggregate level, ChatGPT substantially compresses the productivity distribution, reducing inequality,” the economists say. However, the matter is not so simple.

“The experimental evidence suggests that ChatGPT largely substitutes for worker effort rather than complementing workers’ skills, potentially causing a decrease in demand for workers, with adverse distributional effects as capital owners gain at the expense of workers,” Noy and Zhang state.

Christopher Pissarides, an expert on the impact of automation on work, echoes a sentiment similar to Keynes’, saying that AI could allow humans to work four days a week.

“We could increase our well-being generally from work and we could take off more leisure. We could move to a four-day week easily,” Pissarides told TIME. He does, however, caveat this view at AI being adopted for good, and not being used for things like surveillance and piracy.

As AI seems like something of a double-edged sword, it will likely come down to the strength and thoroughness of regulations, the nature of technological advances, and the collective consciousness of workers to determine which way the sword swings.

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