The AI revolution is underway
Artificial Intelligence may raise labor productivity, economic growth rates, and employee incomes. Or it may not, rather destroying millions of jobs and increasing inequality. Experts give totally opposite assessment of the prospects for this new technological revolution. It may even not be the case, but we still need to prepare for it.
The IMF has made an index of countries' readiness to implement Artificial Intelligence (AI). It tracks 174 states, and the situation is best in wealthier, developed economies, but they also have higher risks as up to 33% of jobs may be lost there. In developing and low-income countries, a smaller part of the labor market is at risk (24% and 18%, respectively), since they have a lower share of highly professional employees who can be replaced by AI.? Those countries will, however, also receive fewer benefits from the introduction of new technology than developed economies.
“Measuring preparedness is challenging, partly because the institutional requirements for economy-wide integration of AI are still uncertain,” the IMF says. The index is based on digital infrastructure, human capital, labor policies, innovation, integration and regulation.
Singapore (scoring 0.8 out of 1), Denmark (0.78), the USA and the Netherlands (0.77 each), and Estonia (0.76) are closest to the full-scale implementation of AI. Russia is just a little more than half ready to introduce AI in the economy (0.56), according to the IMF. It lags behind China (0.64) and Poland (0.6), is almost on a par with Kazakhstan (0.55) and ahead of such large developing economies as Turkey, Thailand and Mexico (each 0.53), Brazil and South Africa (each 0.5), and India (0.49). These countries should "lay a strong foundation by investing in digital infrastructure and digital training for workers," the IMF says.
Performance dispute
“About 40% of workers worldwide are in high-exposure occupations,” significantly reshaping the economy, IMF experts estimated. AI “challenges the conventional wisdom that technological advances threaten primarily lower-skill jobs and points to a broader and deeper transformation of the labor market than by previous technological revolutions,” they warn. Unlike previous waves of automation, which had the strongest effect on middle-skilled workers and mainly affected routine tasks, now almost the entire market is at risk: AI displacement risks extend to higher-wage earners and highly qualified specialists whose work, as previously thought, was not subject to automation. AI is able to perform cognitive functions, recognize patterns and make decisions, the IMF experts note: "Jobs that require nuanced judgment, creative problem-solving, or intricate data interpretation – traditionally the domain of highly educated professionals – may now be augmented or even replaced by advanced AI algorithms, potentially exacerbating inequality across and within occupations."?
The effect of AI “depends largely on the extent to which it displaces or complements workers and to what extent,” IMF experts write. Higher-wage earners have a higher chance of winning when complimented with AI: “they can expect a more-than-proportional increase in their labor income,” according to the research. This correlation is particularly pronounced in emerging market economies such as India. The leg-up that the most high-wage earners will get can also increase the wealth gap, raising the return on capital of those who earn more.
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And what about Russia?
In Russia, the risks of human displacement by AI and machines are low, a study by economists Vladimir Gimpelson and Rostislav Kapelyushnikov shows. They are low for 56% of employees, average for 33%, and high for only 11%. "Does this mean that 11% of the jobs will vanish? No, it does not: the presence of risks does not guarantee their realization," Gimpelson said in an episode of the "Economics out Loud" podcast.
There is also an optimistic scenario. ECB experts studied the situation in 16 European countries in 2011-2019 and did not get a confirmation of the hypothesis that software replaces routine operations of average workers: on average, employment shares increased in occupations more exposed to AI. "Some studies suggest that AI adoption could flatten the hierarchical structures of firms, increasing the number of workers in junior positions and decreasing the number in middle management and senior roles," said Gita Gopinath, First Deputy Managing Director, IMF. David Autor from the Massachusetts Institute of Technology is also optimistic. Unlike the computerization of the 1980s, the introduction of AI may lead not to polarization, but to the restoration of the middle-skill, middle-class segment of the labor market, opening the way to “information, a more consequential economic function, decision-making, which is the province of elite experts,” he argues. If AI can significantly increase productivity, it should accelerate economic growth, increasing the general income and personal income of most workers, the IMF experts conclude.
AI does not have a predetermined future and it can develop in very different directions, say Erik Brynjolfsson and Gabriel Unger from the Stanford Digital Economy Lab at the Stanford Institute for Human-Centered AI. They suggest two scenarios.?
The slow adoption of AI by business is confined to large firms and is largely related to a narrow labor-saving variety (for example, an automated grocery checkout stand). A lot of displaced workers might disproportionately end up in even less productive and less dynamic jobs, further muting any aggregate benefit of AI to the long-term productivity growth. Like so many recent technological innovations (including self-driving cars and virtual reality), AI’s practical benefits may also end up being less promising or less ready to bring to market than initially hoped. The problems may be further compounded by a legal regime that was not designed to accommodate this new technology and may seriously hinder its development; for example,? current models are trained on millions of data points that may include the protected intellectual property of others, about which the media are already complaining. Finally, national regulators may impose strict regulations that slow the speed of AI development and dissemination.?
AI may? not only replace workers, but complements them, freeing them to spend more time on nonroutine, creative, and inventive tasks. A growing share of the labor force increasingly may come? to resemble a society of research scientists and innovators. The successful integration of AI with robots also means that much more of the economy could be amenable to AI-related progress. And AI can enable society not just to do better the things it already does, but also to do and envision previously unimaginable things; for example, AI-backed research in medicine. (In Singapore, AI is already being used to detect early signs of dementia and potential vision disorders.) As a result, the economy will not only reach a higher level of productivity, but also consistently demonstrate higher growth rates.