AI's Impact on Labor Demand

The economic impact of the wheel offers insight into how artificial intelligence affects the labor market. The wheel reduced transportation costs and the need for workers who carried goods. Other technological advancements, like fossil fuels, electricity, the combustion engine and computers, have also replaced tasks.

Computers have been the most transformative technology, changing how we work, communicate, and entertain ourselves. They brought us the internet, social media, and now AI. AI has existed in some form since the 1950s, with more advanced commercial applications now available.

Large language models (LLM) are useful for writing reports and summaries. Generative AI can create images and movies that are difficult to distinguish from human creations. These technologies have many potential uses in fields like economics and warfare.

However, there are limitations. When asked to provide economic hypotheses, LLMs can name data sources and create mathematical models, but the hypotheses are not particularly insightful. Generative AI models sometimes produce flawed images. As AI improves, what will it do to the demand for labor?

AI may increase the demand for labor, similar to previous technologies like the wheel and the computer. Technology replaces tasks, often the most routine ones, which can make the uniquely human parts of jobs more valuable. According to Polanyi’s Paradox, we often know more than we can articulate about our jobs, and humans adapt technology to complement their skills.

Since World War II, technology has replaced much of the work done by the average American, leading to increased wages, production, and employment. The adoption of AI will likely be positive, but there may be challenges.

Difficulties in technology adoption arise when people cannot adapt. Technology pushes workers to more skilled and human tasks. AI is expected to affect more educated workers, impacting skills like writing summaries, press releases, and design work. This could increase the demand for more complex and innovative outputs.

AI will also create demand for employment separate from direct technology use. As human skills become easily replicated, the value of scarce human skills will increase. A classical education may become more valuable as it accesses latent human skills, but it is often more costly to prepare for the next technological shock.

Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University.

Note: The views expressed here are solely those of the author, and do not represent those of funders, associations, any entity of Ball State University, or its governing body.