Abdul Rehman Niazi
As artificial intelligence (AI), particularly generative AI, continues to evolve at an accelerated pace, economists and policymakers are grappling with its potential effects on productivity growth and employment. Some prominent economists argue that AI will have a limited impact on productivity growth but will lead to significant job losses as automation takes over more tasks. However, this viewpoint overlooks the broader implications of AI and the ways it can transform both productivity and labor markets. We believe the future is more optimistic for both productivity and employment, provided the right policies are implemented to support the transition.
AI’s impact on productivity growth can be analyzed through two main channels: automation in the production of goods and services, and automation in the production of ideas. Recent studies show that AI has a substantial potential to increase productivity across various sectors, including customer service and knowledge work. For example, a study examining the use of AI by customer service agents at a U.S. software company revealed a productivity increase of nearly 14% in the first month, with an eventual steady increase of 25% after three months. Similarly, research on knowledge workers found that those with lower productivity levels experienced the strongest improvements, which could help reduce internal inequality within firms.
On a larger scale, our own research into the macroeconomic effects of AI suggests that the technology could significantly contribute to overall productivity growth. In one approach, which parallels AI’s development with past technological revolutions, we estimated that AI could boost aggregate productivity growth by 0.8 to 1.3 percentage points annually over the next decade. A second approach, based on the task-based framework developed by economist Daron Acemoglu, led to a more conservative estimate of 0.68 percentage points annually. However, we believe these figures represent a lower bound, as they don’t fully account for AI’s potential to automate idea generation, which could further drive innovation and productivity.
Despite these promising productivity gains, challenges remain, particularly in segments of the AI value chain that are controlled by dominant firms. As the digital economy becomes increasingly concentrated in the hands of a few “superstar” companies, ensuring competition will be crucial to avoid stifling innovation and preventing smaller firms from accessing the benefits of AI.
One of the most widely debated aspects of AI’s impact is its effect on employment. While some critics claim that AI will cause widespread job losses as machines take over human tasks, evidence from recent studies suggests a more nuanced picture. For instance, our research into firm-level data from France, spanning from 2018 to 2020, shows a positive correlation between AI adoption and increases in both firm-level employment and sales. This supports the idea that AI-driven productivity gains help businesses expand, rather than reducing the demand for workers.
Furthermore, the adoption of AI has been shown to have a positive impact on jobs, even in occupations traditionally thought to be vulnerable to automation. Jobs in fields such as accounting, telemarketing, and secretarial work—often associated with higher automation risks—are still seeing increased labor demand in firms that embrace AI. While it’s true that certain applications of AI, such as in administrative tasks or digital security, may have small negative effects on employment, these impacts vary depending on how AI is used within specific sectors.
The real risk to employment lies not in AI directly replacing jobs, but in the competitive pressure it places on firms. As companies that adopt AI become more productive and efficient, they may gain a competitive advantage over firms that are slower to adopt the technology. This could lead to job displacement, not because AI is eliminating jobs, but because workers at non-adopting firms may be outcompeted by AI-enabled firms. In this context, slowing down AI adoption would be counterproductive, as firms that delay their AI integration could fall behind in global competition.
While the potential for AI to drive both productivity growth and employment is clear, realizing this potential requires the right policy framework. To ensure that AI benefits are distributed broadly and don’t exacerbate existing inequalities, key reforms are needed. One crucial area is competition policy. As AI technology becomes more central to economic growth, the largest and most productive firms—often the biggest adopters of AI—are positioned to reap the greatest rewards. If this trend continues, we risk increasing market concentration and entrenching the dominance of a few large players. To counter this, competition policy should encourage AI adoption by smaller firms, ensuring that they have access to the data, computing power, and resources needed to innovate.
In addition, industrial policy should play a critical role in supporting the growth of smaller firms. By promoting access to AI-related infrastructure and providing incentives for innovation, governments can help create a more level playing field for businesses of all sizes. The expansion of AI adoption among smaller firms will not only increase competition but also promote job creation, as these companies expand their operations.
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Another essential element in maximizing the employment benefits of AI is the development of a highly skilled workforce. As AI continues to transform industries, the demand for skilled workers in fields such as AI programming, data science, and machine learning will grow. To meet this demand, governments must invest in high-quality education and training programs, particularly for workers in sectors most likely to be impacted by automation. Active labor market policies that focus on retraining and upskilling workers will be essential to ensure that workers are prepared for the opportunities AI will create.
Moreover, the potential for AI to generate new jobs in emerging industries should not be underestimated. As AI automates certain tasks, it can also create new roles in sectors we cannot yet fully anticipate. Just as the internet and previous technological revolutions spawned entirely new industries, AI has the potential to unlock new areas of economic activity and job creation.
The AI revolution is already well underway, and its implications for productivity and employment will shape the future of economies around the world. While concerns about job displacement and market concentration are valid, these challenges are not insurmountable. With the right policies in place, including competition policy, industrial policy, and investments in education and training, AI has the potential to drive both economic growth and job creation. Countries that are proactive in adapting to this technological shift will be the ones best positioned to thrive in the new economy. Rather than slowing down AI adoption, the focus should be on ensuring that all workers and firms are equipped to participate in and benefit from the AI-driven future.
