- AI is expected to greatly reduce labor demand, impacting numerous sectors.
- AI-driven automation is projected to significantly increase global productivity.
- The rise of AI may lead to increased unemployment, particularly among the youth.
- Governments might respond to AI shifts with higher taxes and income redistribution policies.
- Businesses will need to adjust strategies due to higher productivity and smaller labor forces.
As we stand on the precipice of a technological revolution poised to alter the global economic landscape, we must grapple with the impending challenges and rewards that artificial intelligence (AI) will bring. Alphabet CEO Sundar Pichai predicted that AI’s impact would be “more profound” than fire or electricity, foretelling a future that could fundamentally reshape our relationship with work and wealth.
AI’s technological advancements are propelling us towards a labor-less economic model. In this brave new world, demand for human labor could decrease while productivity levels soar. The ‘human worker’, a once integral cog in the economic machinery, may find themselves increasingly sidelined as AI technologies take over.
Back-office support, legal services, and accountancy sectors appear to be in the immediate line of fire. With language tasks accounting for 62% of employees’ time, innovations like large language models, such as ChatGPT-4, could affect an estimated 40% of all working hours. Given the pervasive nature of AI, no sector remains immune. In fact, a recent report by Accenture suggests that 65% of the time spent on language tasks could be transformed into more productive activity through AI augmentation and automation.
These gains in productivity aren’t negligible. A new McKinsey report estimates that the AI-driven productivity boost could add a staggering $2.6 to $4.4 trillion in value to the global economy annually. But while these numbers sound promising, we cannot overlook the other side of the coin – the imminent decline in demand for human labor.
The threat of rising unemployment is a specter that looms large. The International Labor Organization reports that global youth unemployment rate has been on an upward trajectory, from 12.2% in 1995 to 15.6% in 2021. With the world population set to continue growing, AI could exacerbate these trends. The prospect of a rise in structural unemployment reminiscent of the deindustrialization of the 1980s is a daunting one.
Governments worldwide may see redistribution as an immediate solution, raising taxes on AI-driven productivity gains and using these revenues to support the broader populace, perhaps through mechanisms like universal basic income. However, the complexity of the issue calls for a multifaceted solution. Governments may need to consider taxing not just excess profits but the revenues of the firms reaping the largest rewards from AI. Thus, a more equitable share of the AI windfall could be claimed by the state and, in turn, the general population.
Meanwhile, businesses face an uphill battle to recalibrate their strategies and operations for a future with higher productivity and a smaller labor force. Their survival will depend on their ability to generate more output with less capital. The ability to adapt and achieve low cost-to-income ratios will determine who thrives in this new era and who falls by the wayside.
Corporate adjustments will have far-reaching consequences throughout the economy. As the demand for capital decreases, firms will rely less on borrowing from banks, leading to a decline in overall activity in capital markets. Higher taxes on corporate profits or revenues to support the growing number of unemployed could leave corporations with lower retained earnings to reinvest. This would not only hurt the companies but also potentially undermine economic growth, shrink the economic pie, and lower living standards. Moreover, it could narrow the tax base, erode the middle class, and widen inequality between the owners of capital and the traditional labor force.
We’re entering uncharted territory. To navigate these treacherous waters, governments and policymakers need to re-evaluate long-standing economic models and principles. Short-term measures, like raising taxes and redistributing revenues, can provide some relief, but a more profound rethinking is required. We must question the foundational assumption that labor is a key engine of growth and explore new paradigms where, in the age of AI, workers may not drive growth but must unequivocally benefit from it. As we hurtle towards this future, adaptation, innovation, and inclusivity must guide our path.