AI & its impact in labor market Navigating the Future Together

Artificial Intelligence (AI) has become a buzzword in recent years, capturing the imagination of both technophiles and skeptics alike. While AI holds tremendous potential to transform industries and improve productivity, its impact on the labor market raises important questions.

Will AI replace human workers? How can we adapt and navigate this evolving landscape?

Artificial Intelligence has emerged as a transformative technology, revolutionizing numerous industries across the globe. While AI brings immense opportunities for innovation and efficiency, its integration into the labor market also raises concerns about the future of work. The impact of AI on jobs and the labor market is a topic of great interest and debate. In this article, I would like to offer a view on the relationship between AI and the labor market, its consequences and shed light on the transformations it brings providing different insights.

?1. Automation and Job Displacement:

One of the primary concerns regarding AI is the potential for automation and its consequently job displacement.

According to McKinsey , Automation will displace some workers. They estimate that around 15 percent of the global workforce, or about 400 million workers, could be displaced by automation in the period 2016–2030.

?As AI technologies continue to advance, routine and repetitive tasks can be efficiently performed by machines, leading to the displacement of certain job roles. Jobs in manufacturing, transportation, customer service, and data entry are particularly susceptible to automation. While this may lead to short-term job losses, it also creates opportunities for workers to shift to more complex and creative roles that require human ingenuity. Following the New York Times, at Amazon, employees who previously lifted and stacked objects are becoming robot operators, monitoring the automated arms and resolving issues such as an interruption in the flow of objects.

However, it's important to note that not all jobs are equally vulnerable to automation. Jobs that involve social intelligence, creativity, emotional intelligence, and complex problem-solving are less likely to be fully automated. These skills are uniquely human and are highly valuable in many industries. Therefore, while some jobs may be replaced, new roles that require human skills and judgment are expected to emerge. What we can certainly expect is that many tasks currently performed by humans will be automated, leading to a decline in the number of available jobs. While certain industries and occupations may be particularly vulnerable to automation, such as manufacturing, transportation, and certain administrative?tasks, we may see the generation of new ones. Now would we have enough for all? Probably not, that is where new alternative models and solutions will be needed, I will focus on this in my next article, considering for example extending social contribution.

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2. Job Transformation and Skill Requirements:

AI is not just replacing jobs; it is also transforming them. Many job roles are becoming augmented by AI, where humans and machines work together to enhance productivity and decision-making. This shift requires employees to develop new skills to effectively collaborate with AI systems. The demand for skills such as data analysis, programming, critical thinking, and creativity is on the rise. Upskilling and reskilling programs are crucial to help workers adapt to these new roles and remain relevant in the evolving job market.

To address the changing skill requirements, organizations and educational institutions need to prioritize lifelong learning and skill development. Governments and businesses should collaborate to provide accessible and affordable training programs that equip workers with the necessary skills to thrive in an AI-driven economy. This includes investing in STEM education, promoting digital literacy, and creating apprenticeship programs that combine theoretical knowledge with hands-on experience.

This graphic from Mc Kinsey could be very illustrative:

?3. Increased Efficiency and Productivity:

AI has the potential to significantly enhance efficiency and productivity in various sectors. Intelligent automation can streamline business processes, improve accuracy, and reduce operational costs. By automating repetitive tasks, AI frees up human workers to focus on more value-added activities, such as innovation, problem-solving, and customer service. This can lead to higher job satisfaction and the creation of new roles that leverage human strengths and capabilities.

Furthermore, AI-powered tools and algorithms can enable workers to make data-driven decisions, identify patterns, and gain deeper insights. This can enhance productivity across different industries, ranging from healthcare and finance to marketing and logistics. Companies that effectively integrate AI into their operations have the potential to gain a competitive advantage, drive innovation, and deliver better products and services to their customers. And here, the word efficiently is key, as many companies are incorporating these, but at the end of the day their decission making process is not altered, an efficient integration requires not only the tools, the professionals, the new operating models, but a cultural change that starts from the top.

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4. Job Creation and Economic Growth:

As AI technologies advance, new industries and job sectors emerge. The development, maintenance, and deployment of AI systems require a skilled workforce. AI can stimulate economic growth, ?while it may displace some jobs, it also has the potential to create new ones.

Job Creation in AI-related Fields, the development, implementation, and maintenance of AI technologies require a skilled workforce. This includes roles such as AI researchers, data scientists, machine learning engineers, and AI ethicists. As AI continues to advance, the demand for professionals in these fields is expected to grow, leading to job creation.

The Changing Landscape, the integration of AI into the labor market is undoubtedly reshaping job roles and industries. New AI-powered systems, who’s the ultimate goal is not to replace humans but rather to augment our capabilities. A study by the World Economic Forum estimates that AI will create more jobs than it displaces, emphasizing the importance of adapting to this changing landscape.

According to McKinsey, based on several catalysts of demand for work, including rising incomes, increased spending on healthcare, and continuing or stepped-up investment in infrastructure, energy, and technology development and deployment, created different scenarios in regards to labor demand to 2030. These scenarios showed a range of additional labor demand of between 21 percent to 33 percent of the global workforce (555 million and 890 million jobs) to 2030, more than offsetting the numbers of jobs lost. Some of the largest gains they were forecasting will be in emerging economies such as India, where the working-age population is already growing rapidly, although we might consider other economies as well.

How could AI contribute to economic growth?

By automating routine tasks and leveraging AI technologies, businesses can optimize processes, enhance productivity, reduce costs, and improve efficiency. This, in turn, can lead to increased economic growth and create new job opportunities in areas that require human creativity, critical thinking, and problem-solving skills. This contributes to what we referred before as the increased demand for skilled workers to develop and operate these AI systems.

Innovation and New Industries: AI has the potential to spur innovation and the emergence of entirely new industries. As AI technologies advance, new applications and business models will arise. This can lead to the creation of startups and entrepreneurial ventures, resulting in job creation and economic growth.

Economic Transformation and Restructuring: AI has the potential to transform industries and facilitate economic restructuring. More automated processes will be easier to adapt, transform and scale. The key lies not only in adapting to this transformation by reskilling and upskilling the workforce to meet the changing demands of the labor market, but as well, as mentioned before in the cultural mindset.

What is recent research telling us?

Researchers from various fields, including economics, computer science, and social sciences, have conducted studies to understand the impact of AI on jobs, employment patterns, and skill requirements.

1. Regarding job Automation and Displacement: Researchers have examined the extent to which AI and automation technologies can replace human labor in different industries and occupations. Studies like those by Frey and Osborne (2017) and Acemoglu and Restrepo (2019) have estimated the susceptibility of jobs to automation, highlighting which tasks are most likely to be automated and how this may affect employment levels. Their key findings were:

- AI technology can lead to job polarization, where routine jobs decline while high-skilled and low-skilled occupations increase. This polarization may exacerbate income inequality.

- The adoption of AI can have a negative impact on labor demand in certain industries, reducing the number of available jobs.

- However, AI can also complement human labor, leading to productivity gains and the creation of new jobs. It may enhance workers' capabilities and increase the demand for skilled tasks.

- The overall effects of AI on employment and wages depend on various factors, including the specific technology, the skill level of workers, the ability to adapt to new tasks, and the institutional framework

2. About skill Requirements and Job Transformation: Researchers have explored the changing skill requirements in an AI-driven economy. They have identified the specific skills that are in high demand, such as data analysis, programming, and critical thinking, and investigated how these skill changes affect job roles and career paths. For example, the World Economic Forum's Future of Jobs Report and reports from the OECD have examined the skills and competencies needed in the era of AI.

World Economic Forum's Future of Jobs Report:

The Future of Jobs Report, published by the World Economic Forum, highlights the skills that will be in high demand in the near future. The key skills identified include:

a) Complex problem-solving: The ability to analyze complex issues and find effective solutions.

b) Critical thinking: The capacity to evaluate information objectively and make reasoned judgments.

c) Creativity: The ability to think creatively, generate innovative ideas, and apply them in different contexts.

d) People management: The skill of effectively working with and leading others, including collaboration and emotional intelligence.

e) Emotional intelligence: The capacity to understand and manage one's own emotions and empathize with others.

f) Cognitive flexibility: The ability to adapt and switch between different tasks and think flexibly in changing circumstances.

e) Judgement and decision-making: The capability to make sound decisions based on available information and analysis.

2. OECD Reports:

The OECD has as well conducted various reports examining the skills and competencies needed in the era of AI and automation. Some common findings from these reports include:

- Digital skills: Proficiency in digital technologies and tools is becoming increasingly important across all industries and job levels.

- STEM skills: Science, technology, engineering, and mathematics (STEM) skills are highly valued, as they underpin many AI-related applications and innovations.

- Analytical and quantitative skills: The ability to analyze data, interpret patterns, and derive insights is crucial in the age of AI.

- Technological literacy: Understanding the basic principles and applications of AI, machine learning, and other emerging technologies.

- Soft skills: Non-technical skills such as communication, teamwork, adaptability, and resilience remain important in complementing AI and automation.

In addition to these technical and soft skills, continuous learning and upskilling are emphasized as essential to keep up with the evolving demands of the workforce in an AI-driven world.

It's worth noting that the specific skills needed may vary across industries, job roles, and regions. Moreover, the rapid advancement of technology means that the skills landscape is constantly evolving, and new skills may emerge as critical?in?the?future.

3. Implications for Inequality and Labor Market Polarization: Scholars have explored the potential consequences of AI on income inequality and job polarization. They have investigated how the adoption of AI technologies can lead to a divergence in job quality, with some workers benefiting from higher-skilled roles while others face job displacement or stagnation. Research by Autor et al. (2020), suggests that automation has contributed to job polarization, with employment and wages becoming increasingly concentrated at the high-skill and low-skill ends of the spectrum. Middle-skill jobs, which often involve routine tasks, have experienced a decline in both employment opportunities and wage growth.

Brynjolfsson and McAfee (2014) provide insights into these issues, nine years ago they examined the effects of technological progress on labor market inequality in their book "The Second Machine Age." Arguing that advances in digital technology have led to a divergence between productivity and employment. While technological advancements have increased overall productivity, the benefits have not been evenly distributed across the workforce. For the authors, workers with complementary skills to technology (such as those who can effectively use and adapt to new technologies) have experienced increased demand and higher wages. However, workers whose skills are substitutable by technology have faced challenges in terms of job displacement and wage stagnation. This approach is one of the most commonly accepted perspectives when visualizing future scenarios.

?It's important to note that the field of AI and labor market research is evolving rapidly, and new studies are continuously being conducted. These research efforts contribute to our understanding of the consequences of AI on the labor market and provide valuable insights for policymakers, businesses, and individuals navigating the challenges and opportunities brought by AI?technologies.

To conclude, AI is poised to revolutionize?the?labor Market, sooner than later, and?will cause ‘significant labor-market disruption’ over next 5 years, according to the ?World Economic Forum.

Over the next five years, nearly a quarter of all jobs will change as a result of AI, digitization and other economic developments like the green energy transition and supply chain re-shoring, according to a report published by the World Economic Forum in Geneva last May.

Some 75% of surveyed companies said they expect to adopt AI technologies over the next five years, which they predict will eliminate up to 26 million jobs in record-keeping and administrative positions — think cashiers, ticket clerks, data entry and accounting. The WEF study surveyed more than 800 companies that collectively employ 11.3 million workers across 45 economies from all over the world.

This new revolution is here and I hope this article may help to understand better some of the different aspects of it, as it is very important that we start embracing it sooner than later. In my following article I will focus on specific recommendations for CEOs, trade unions, educators, students, and employees and possible solutions to some of the challenges as job displacement.