With the mass diffusion of AI in business processes, both on the manufacturing front and to an even greater extent in services, we will finally see a productivity boost of the most advanced economies? And again: will the effects on employment be significant? The proponents of the Jevons paradox may be right, and AI will therefore expand unprecedented scope for increasing demand for specialized services, which are poised to become increasingly customizable and affordable. The only current certainty is that the labor market is destined to rapidly change its forms, pace, and rules of engagement, with scenarios that cannot yet be clearly delineated.
Il Nobel Prize for Economics in 2021 David Card, a Canadian economist who teaches at Berkeley in California, has focused his scientific production on the factors that influence the labor economy, starting from the minimum wage, migration flows, education and professional training. FIRST online outlines his vision of the changes coming to the labor market, at a time when technological advances seem capable of distorting many of the social structures that have developed over the past few decades.
Professor Card, large corporations are reducing the number of white-collar workers, especially in middle-level positions. With the next steps in the diffusion of AI in US and European companies, should we expect significant increases in labor productivity?
I believe we've already seen some productivity gains in specific sectors, such as software engineering, and likely even in highly document-based industries like legal services. However, it remains a matter of considerable debate whether these benefits are large or small, and whether the layoffs we've seen in tech companies are actually the result of increased productivity, or whether they stem from liquidity needs on the part of companies investing heavily in IT infrastructure and data centers. My impression is that we're going through a phase similar to the 1990s, when the great economist Robert Solow observed that the Internet revolution was visible everywhere except in productivity statistics.
Some economists argue that AI will increase demand for tertiary services, which will become increasingly cheaper and easier to access. Will technology replace tasks but not jobs?
In the long term, some jobs will likely disappear entirely. However, many other professions will evolve, and some specific tasks will be transformed. For example, traditional taxi driver jobs may decline, while more specialized services, aimed at tourists or people with disabilities, will continue to exist.
For many years, immigration has helped offset the demographic decline of the most advanced economies. What effects do you expect on wages and labor market structure when these two phenomena, aging and migration, become increasingly difficult for liberal democracies to manage?
"That's a very interesting question. Economic models would suggest that the clearest evidence of a labor shortage, due to demographic decline, should manifest itself in an increase in wages for entry-level workers relative to those of more experienced workers. So far, however, I'm not aware of much evidence suggesting such a phenomenon, even in countries where population decline is already underway, such as Japan. Perhaps this means that the models are oversimplified. Or it could be that relative labor demand is changing in parallel with relative supply, thus preventing significant changes in relative wages."
If technological progress creates intense competition between machines and humans, even in unprecedented ways, will the bargaining power of large companies over skilled workers increase?
"My impression is that the share of income going to labor will continue to decline, as it has over the past twenty years. I'm less convinced, however, that the relative wages of the most skilled workers will undergo significant changes."
Is technological progress combined with the profound socio-demographic changes underway in the West (aging societies with low birth rates) destined to further widen income inequalities "between" economies or "within" national economies?
"The most obvious effects will likely be felt within individual countries. At the international level, there are many other factors that are still poorly understood or difficult to explain, which will make it difficult to isolate the specific role of technology."
In Western economies, will technological change require more or less government intervention in regulating the labor market? Wage setting, regulations governing the use of AI, and ongoing training obligations for companies.
"My impression is that in the United States, for example, all these forms of regulation are destined to be reduced and progressively abandoned. I believe that a similar trend could also manifest itself in many other Western countries, although probably to a lesser extent than in the United States."
Education has been the primary driver of social mobility in advanced economies. Will AI strengthen or weaken the economic and social value of education and specialized skills?
"My hunch is that artificial intelligence will increase demand for higher levels of education and training. This could further widen inequalities between those who enter higher education at elite institutions and those who receive lower-level education in public schools with more limited resources and funding."
