The Question Most are Afraid of: How Will AI Change the Economy?

AI is Here Not Just Because of Automation

Whether we want it or not, AI will have an impact on national security, politics and culture in addition to the economy. It has the potential to alter many professional roles, the division of labor and the interaction between laborers and tangible capital in the economy. While automation has primarily affected repetitive tasks, artificial intelligence has a tendency to affect skilled labor tasks.

AI refers to the wide range of technological advancements that enable machines to emulate human cognitive functions, including perception, interpretation, learning and action. While automation was developed to complete monotonous tasks and boost output more effectively, AI can create new content through its remarkable rate of evolution, including texts, images, new computational codes, potential medical diagnoses, data interpretations and more. The prediction of an AI-driven technological revolution is not coincidental.

“Artificial intelligence is not designing a robot that will put a screw in a car on a production line when the time comes, but designing a robot that knows how to interpret that the car arrived crooked to the left or that the screw is broken, and that will be able to react sensibly to this unexpected situation.”

The Dual Impact of AI on Productivity and Employment

It is expected that there will be a significant increase in productivity and demand for work in the parts of the work process where human supervision of AI will still be required. AI may result in significant job displacement or even the outright elimination of jobs in other industries. In an article published in the December edition of Finance and Development, the International Monetary Fund's magazine, Daron Acemoglu and Simon Johnson stated that "AI needs to complement workers and not replace them to support shared prosperity."

In theory, a gradual rise in overall productivity could support economic expansion and, consequently, raise aggregate demand, creating job opportunities to offset job losses. This evolution may also result in a dynamic that goes beyond simple intersectoral reallocation, with some professional functions and sectors disappearing and others emerging.

The impact of AI on capital income will determine the distribution of income in addition to its effects on employment and wage-income distribution. Activities that develop and use AI or have investments in AI-driven industries, will likely see an increase in this. The distributions of capital income and between capital and labor will be impacted, depending on the implications on the "market power" of businesses.

The Numbers Don't Lie

The IMF published the findings of preliminary research on the effects of AI on the nature of work on January 14 2024. Due to variations in their current employment structures, an estimated 60% of jobs in advanced economies will be impacted, with the percentage dropping to 40% in emerging economies and 26% in low-income countries.

According to the report, half of the impacted jobs will suffer negative effects, while productivity gains are possible for the other half. Reduced effects on developing and emerging nations will typically result in lower gains in terms of higher productivity.

The study showed how a country's degree of AI readiness will matter in terms of optimizing the advantages and managing the dangers of the technology's unfavorable impacts. An index was included in the report to evaluate each country's level of readiness, accounting for factors such as digital infrastructure, innovation and economic integration, levels of human capital and labor market policies, regulation and ethics.

After a thorough evaluation of 30 countries, middle-income and low-income nations are ranked at the bottom, with Singapore, the US and Germany ranking highest. It should be obvious that raising each nation's level of AI readiness should be a top priority for policy.

Your Today's Decisions Form the Future

In summary, AI has the potential to have a significant impact on the labor market, the economy, and society worldwide. Although AI can increase productivity and open up new opportunities, if it is not utilized carefully, it also carries the risk of eliminating jobs and disrupting the economy.

The AI revolution is already underway and it will have an enormous effect. Together at Mind University, we can work to create a future by investing in AI readiness, supporting workers through this transition and proactively addressing the societal implications of AI. The decisions we make today will define our future.