Today’s innovation is tomorrow’s technology. Artificial Intelligence (AI) – the display of intelligence by a computer or machine – is a developing field in today’s age and may soon find its way into almost all spheres of life. The adoption of Artificial Intelligence as technology in economic activities, it is argued, may inflict abrupt shocks on the labor market, producing rapid and uncontrollable unemployment as a result.
The use of AI technology in relation to employment is a contentious topic in the context of economics, politics, and ethics. Economically, how will AI impact the labor market? Politically, what can governments do to adapt to AI and at the same time mitigate its abrupt consequences? Ethically, will the distribution of the benefits and costs of AI be equitable among socio-economic sectors? The ethical dimension cannot be divorced from countries’ economic and political responses in the face of the rising AI trend.
Normally, adoption of new and advanced technology stimulates displacement of workers in certain industries – called the displacement effect. It also triggers opportunities and job openings in different and new industries – called the productivity effect. The net effect determines the degree of employment or unemployment.
It is precisely here that government policies and institutions, market regulation practices, and education and training systems of the country can help with the adoption of AI technology in economic processes, so as to ameliorate job destruction and optimize job creation.
Artificial Intelligence’s effects on the labor market generally depend on the country’s economic and political climate. To realize the positive impacts of AI technology on the labor market and hence employment, it is important to produce an economic, political, and educational environment conducive to Artificial Intelligence.
Challenges (and opportunities) on employment with new technology
According to McKinsey, from 400 million to 800 million individuals may be displaced from their jobs on account of automation. Similarly, according to an IBM survey in 2019, around 120 million laborers “will need retraining in the next 3 years” to equip them with skills required by AI adoption.
The prospect of job displacement naturally creates uncertainty and fear in people. The above figures do not necessarily mean job loss, as old jobs may evolve and new jobs may transpire on account of technology revolution. Dr. Manjeet Rege and Dan Yarmoluk from the University of St. Thomas, Minnesota, in their academic article, argue that instead of equating these numbers to “job loss”, they should be interpreted in the sense that the upcoming advancements in AI technology will essentially demand “job retraining and job reskilling.”
Moreover, where the foreseeable AI technologies will increase productivity in certain tasks, they may increase the demand for people’s soft skills in the areas of “creativity, common sense, judgment and communication skills”.
A few decades ago, who would have imagined the rise of digital jobs in the sphere of internet today? Similarly, where Artificial Intelligence may facilitate jobs in many areas that we know of, it will create numerous job opportunities in industries and fields the world is not even aware of yet. Bryon Reese, the CEO of GigaOM Media, said in relation to AI technology: “The real gains in jobs will come from places where our imaginations cannot yet take us.”
Given the rapid advancement in technology, the AI evolution in economic processes may create disruptions in the labor market, causing ripple effects in employment. Still, a corresponding number of jobs, if not more, are expected to be created as well.
Artificial Intelligence and creative destruction
The abandonment of previous jobs and economic outlooks to give way for new technologies, skills, and opportunities signifies the process of creative destruction. An important aspect of creative destruction is that replacing old technologies with new ones opens up new levels of productivity channels previously impossible.
According to most economies’ data, 10 percent of jobs are destroyed while “the same number of new ones are created” every year. However, the job destruction and creation that results from technological advancement accompanies the rise in productivity, the forerunner of improvement in living standards.
It is also suggested that investment in new technology and methods may even create more jobs than destroyed. Germany, France, United States, and many countries experienced a rise in their overall employment during the period of 1980-98. One reason for that is their additional investment and adoption of capital-intensive technology, which were the innovations of that time.
From the Industrial Revolution to today, the historical account demonstrates that generally whenever jobs are destroyed, on account of creative destruction, employment shifts to entirely new domains of economic activities accompanied by an average increase in productivity. The forthcoming impact of Artificial Intelligence in economic practices is therefore promising, but it will largely depend on countries’ economic and political response.
The role of government, businesses, and knowledge managers in the AI revolution
The impact of new technology on economic processes depends on the willingness, extent, and nature of adopting that technology in a country. For swift and efficient diffusion of innovative technology in the everyday economic processes, there must be effective institutions in place to encourage and facilitate technology advancement.
The role of state institutions and government policies on ease of doing business, market regulation, and incentives creation is crucial in adopting new technology in society at large. In countries where rent-seeking is prevalent, causing stagnancy in business activities by restricting competition, it is difficult for new firms to enter and there is less incentive for technology innovation. As a result, the cycle of job destruction and creation may be hampered, especially at the expense of productivity.
Philippe Aghion, Céline Antonin, and Simon Bunel, in their article from the book Work in the Age of Data, show that the impact of AI technology on the labor market, employment, and growth largely depends on the country’s institutional culture, policy environment, and education system. The paper contends that Artificial Intelligence has the “potential to boost economic growth,” but for a country to capitalize on the positive effects of AI adoption, there must be relevant institutions, healthy labor market policies (for example, competition and innovation incentives), and a better education system.
On the other hand, AI may end up slowing down economic growth and negatively impact aggregate employment “if combined with inappropriate institutions, in particular with inappropriate competition policy.” This is in line with the trend of unemployment in 16 OECD countries for the timeline 1960-2014. The patterns of their unemployment are explained not in terms of the differences in their innovation and technology capacities, but they reflect the “differences in the institutions and policies in force in the countries.”
Therefore, the impact of the AI revolution on the labor market and hence employment will essentially depend on the response of governments, businesses, and education systems in the face of the rising challenge.
Ethical conundrum – AI and employment in the short-run
The cycle of job creation and destruction takes time, even in economies that accommodate new technology. Even though the process of creative destruction is promising in the long-run, the delay, it is argued, may cause a loss in employment in the short-run. Moreover, the promised benefits in the long-run are not described in a strict temporal sense. The long-run may constitute an indefinite amount of time, especially for those displaced from their jobs in the short-run. “In the long run we are all dead,” as John Maynard Keynes claimed.
It is in the transition phase of creative destruction that one is essentially faced with the ethical conundrum. To realize long-run benefits, there will be short-run costs – which, as is argued, may put disadvantaged socio-economic workers at a loss. Furthermore, even under positive institutions and competitive market environment, AI adoption may displace laborers of certain industries while improving the position of others.
It is here that the government is challenged once again, given its crucial role in helping “reallocate workers to new firms and sectors by providing job-matching and retraining services, and by providing generous but time-limited unemployment benefits.” Moreover, to ameliorate the negative consequences of adopting AI technologies in economic processes, “public policies should aim at raising the education level and at promoting continuous training.”
The transition phase from current technologies to AI, therefore, poses a threat in the short run, but this can be countered through proper governmental and educational policies aimed at equal distribution of costs and promotion of learning.
Conclusion – The spirit of dynamism
The imminent AI revolution in the technological processes of economies will certainly impact the labor market and aggregate employment at large. An analysis of advancement in technologies in the past, and the process of creative destruction in general, shows that there may be opportunities for greater productivity and employment due to AI adoption.
However, the impacts may be different in short-tun, where more jobs may be displaced than created. The response of governments, businesses, and knowledge managers and educationists to the rising challenge of AI evolution will greatly determine the impact of AI on the labor market, in the short-run and the long-run.
The idea is to embrace upcoming developments instead of resisting new challenges. The Artificial Intelligence revolution will therefore test economies’ capacity and willingness to learn, adapt, and evolve.