AI and the impact on productivity and inequality

A lot has been said about the impact of AI and its ability to transform an economy although it does not have a predetermined future. The IMF publication F&D (December 2023) ran article on the implications of AI on macroeconomics – two areas of focus were productivity and inequality.

Productivity

Low productivity: adoption by business maybe slow and confined to large firms. Narrow labour-saving technology such as automated checkouts in supermarkets. Workers might end up doing less productive and dynamic jobs. Benefits of AI might not show up in the data decades later.

Robert Solow talked about the impact of computers in 1987 – ‘You can see the computer age everywhere but the statistics’.

Companies may not be able to figure out how best to use AI in an organisational sense. Also a lot of uncertainty over what current laws concerning intellectual property mean when considering that it might include the protected intellectual property of others. Furthermore, governments might impose strict regulations with the uncertainty around AI especially with the impact on the labour market.

High productivity:AI could be a massive boost to productivity by complementing workers and freeing them up to be more inventive in their tasks. AI can capture the tacit knowledge of individuals and organisations by drawing on vast amounts of newly digitised data. An AI enables society not just to do better the things it already does but to do things and envision things previously unimaginable.

Income Inequality

Low inequality:AI could lead to lower income inequality because its main impact on the workforce is to help the least experienced or least knowledgeable workers be better at their jobs. A study of 5,000 workers who do complex customer assistance jobs at a call centre found that among workers who were given the support of an AI assistant, the least skilled or newest workers showed the greatest productivity gains. If AI is a substitute for the most routine and formulaic kinds of tasks, then by taking tedious routine work off human hands, AI may complement genuinely creative and interesting tasks, improving the basic psychological experience of work, as well as the quality of output.

High inequality: AI could lead to higher income inequality. Technologists and managers design and implement AI to substitute directly for many kinds of human labour, driving down the wages of many workers. If AI substitutes higher paying jobs, more workers are relegated to low-paying service jobs where some human interaction is valued and the pay is low. In this scenario it could be that businesses cannot justify the cost of a big technological investment to replace them and income inequality increases.

Source: F&D December 2023 – IMF

Sign up to elearneconomics for comprehensive key notes with coloured illustrations, flash cards, written answers and multiple-choice tests on Productivity and Inequality that provides for users with different learning styles working at their own pace (anywhere at any time).