Written by Yoochan Hwang, 11F

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With the advent of AI-powered technological breakthroughs, such as ChatGPT, the world has been astonished by the power and potential that artificial intelligence holds for our future. Numerous experts argue that the fourth industrialization will emerge with this remarkable technology, and picturing our future as a scene of a Science Fiction movie has now become persuadable. Despite all the positive speculation about artificial intelligence, the outpouring of concerns about unemployment has centred the world’s attention on how AI will reshape the labour market. CNN’s finding on April 2023 highlights that "about 14 million jobs will vanish in the next 5 years "(Horowitz, 2023), and AIs’ substitution of labour is posing a great danger to job security. On the other hand, some scholars view the growth of technology as an efficient way to enhance productivity and create more jobs with higher wages in the future. Considering both optimistic and pessimistic prospects about the impact of AI, it is important that we deeply understand and evaluate how AI would reshape the future of labour markets. In this essay, it is argued that while AI can reduce the demand for labour by displacing labour with capital, other countervailing forces can increase labour demand and wages.

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Artificial intelligence (hereafter, AI) is a technology that can learn and adjust from data and mimic human-like cognition to perform complex tasks and problem-solving. From a mere technology designed to play checkers in 1952 by Arthur Samuel, recent innovations such as machine learning and deep learning have allowed AI to develop at a tremendous pace. Hence, AI has now become a significant contributor and a pioneer in new business processes and jobs, sparking economic speculations about the imminence of the age of leisure. In Maynard Keynes’ book "Economic Possibilities for Our Grandchildren"(Keynes,1930), Keynes argues that through a huge development of a nation’s economy, working " three hours a day [will be] quite enough to satisfy ... most of us"(Keynes,1930,[5]) and doing "more things for ourselves"(Keynes,1930,[5]) will outweigh the individuals’ workload. In fact, the United States’s GDP (Fig. 1) had sixfolded since Keynes’ writing, but the average hour worked per employee (Fig. 2) fell only by 4%. The past empirical evidence may suggest that we are far from reaching a three-hour workday.However, Keynes’ insightful prospect allows economists to suggest a possible economic boom coupled with AI, and in order to understand why "AI will be part of our future" (Pichai, 2018), it is essential to thoroughly understand the impact of AI on the labour market.

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Fig.1 - Real Gross product per capita in the United States
(U.S. Bureau of Economic Analysis, FRED, Federal Reserve Bank of St. Louis)

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Fig.2 - Average annual hours worked by persons engaged in the United States

(University of Groningen, University of California, Davis)

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To begin with, AI is expected to create positive impacts on our economy by significantly increasing productivity, but the size of the impact is debated. Economists are anticipating cost- efficient and highly productive production through automation technologies. On the other hand, some studies such as Petr Polak’s ‘productivity paradox: A meta-analysis’(2014) find that the "remarkable and significant innovation in computer technology... [produced] only a small growth in productivity" (Polak, 2014,1). Explaining both sides of the argument, the S-curve (Fig.3), perfectly shows the reason for our current stagnation of Ai performance. Throughout "the Patterns of technical evolutions" (Sawaguchi,2011,1), technologies require time to be learnt and implemented, which leads to a slower rate of growth. When the development settles, it reaches an acceleration phase (a steeper gradient), eventually meeting maturation and its stabilization over time (the flattening curve). Thus, many economists state that the current slow growth is caused by our position in the early stages of the graph and expect growth in productivity in the future.

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Fig.3- the S curve (Sundar. (2020). What is Technology S-Curve in Product Design? ExtruDesign.)

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Nevertheless, there is mounting concern that AI-facilitated automation will replace human labour in certain tasks and jobs, resulting in large-scale unemployment. Goldman Sachs' recent finding shows that "roughly two-thirds of current jobs[,]... equivalent to 300million"(Goldman Sachs, 2023,1) are exposed to some degree of AI automation. Therefore, the prevailing prediction suggests that "AI and robotics [will] replace workers in tasks that they previously performed, and via this channel, create a powerful displacement effect" (Acemoglu & Restrepo,2018,3). The displacement effect’s substitution of tasks from human to capital puts downward pressure on employment and wages, posing a scenario of the future that is completely opposite to the age of leisure. With the excessive displacement of human labour by automation, the future generation may never experience a three-hour workday, swimming in an overflow of leisure. They may experience miserable unemployment, struggling to feed their children.

 

Conversely, scholars suggest that AI has the potential to create jobs through different channels. For instance, Acemoglu & Restrepo (2018) argues that the productivity effect will increase labour demand and wages by the cost saving from automation. The productivity effect is defined as a phenomenon where "cost savings generated by automation... increase the demand for labour in non-automated tasks" (Acemoglu & Restrepo,2018,1). Due to the increased productivity, firms are able to produce their products at a lower cost per unit and sell them at a lower price. Hence, the lower price of products ultimately increases the disposable income of individuals and simultaneously raises the demand for goods and services with labour demand. While the productivity effect highlights a short-term positive effect of new technologies, NBR states that the capital accumulation effect and deepening of automation will create a "medium- run" (Acemoglu & Restrepo, 2018,22). The deepening of automation expands the productivity effect without any displacement of labour. "By [simply] replacing existing machines with newer, more productive vintages"(Acemoglu & Restrepo,2018,6), firms yield a further increase in productivity and raise their demand for labour and wages. Furthermore, as technological development advances, it corresponds to an increase in the capital intensity of production. Thus, the high demand for capital triggers the capital accumulation effect with new high-productive and labour-intensive tasks that can complement accumulated capital, requiring firms to seek additional employment (Acemoglu & Restrepo,2018,9)

 

By looking at the situation within theoretical perspective, it is possible that the age of leisure will come as there are many theoretical mechanisms through which AI can positively influence employment and wages. However, based on unlimited human desire and the "nature of wanting to do something useful", (Richard Freeman,2015,3) the age of leisure may never come into existence. How well people adapt to the new environment by re-skill or up-skill will also be the determinant of overcoming the AI-induced changes in the labour market. As smart as AIs are, there are unique skills that humans have, which cannot be replicated or automated.

 

In conclusion, it is evident that the impact of Artificial intelligence will totally depend on how well we adapt and utilize them. In the future, to minimize the drawbacks and maximize the benefits caused by AIs, the governments of the nations must educate their citizens to wisely reskill and upskill for a possible era where humans and AI will collaborate to form a prosperous society. If left neglected, an outpouring of unemployment and poverty may deepen economic complications such as inequality. Thus, each government’s indefatigable attempt to balance and control the impact of AI will deduce the best and the most effective use of this technology.

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