The Economic Impact of AI

Many economic impacts are a result of the introduction of robots and AI. However, one of the largest and most major is its impact on employment. This is because robots and AI are at a stage where they can function as direct replacements for workers, an example being a post office worker’s job to sort parcels by size could be replaced by a robot who could likely more accurately sort the parcels. Stats to support this suggest that around “half of all companies currently utilise AI in some fashion”[1] and that “AI could take the jobs of as many as one billion people globally and make 375 million jobs obsolete over the next decade”. This introduction poses some big threats to the employment market.

[1] Zippia (2023), Artificial Intelligence and Job Loss Statistics (2023): How Job Automation Impacts the workforce

In particular, there would be a decrease in the employment of labour-intensive/low-skilled workers such as in the agricultural sector (primary sector jobs are at risk). This is because these jobs in particular are easily replaceable by machinery for example a worker who puts the wheels on a toy car could easily be replaced by a robot which could perform the same simple task as the robot only needs to be able to screw the wheels onto a small toy car which is an easy task to do. Robots work as a one-time investment and require the firm to only make one big purchase and in the long run, this could be potentially cheaper than paying wages for a real worker to do the task, this already is a bold enough reason for firms to start replacing their workers as firms’ goals are always to maximise profits, on top of this Robots. Would be less likely to make mistakes as they are mechanical and have no chance of a human-induced error, for example screwing in the wheels wonky onto the car since the worker wasn’t paying attention while doing their job. As a result of these workers being easily replaceable, there is a decreased demand for them, this leads to more people being unemployed as well as lower wages, creating a lower standard of living for these workers and their families specifically. There will also be an increase in employment for highly skilled workers such as the financial sector (quaternary sector jobs – researchers and code developers). This is because the introduction of AI requires a skilled coder to write the code for and create the AI as well as engineers to create the robots. As more firms aim to maximise their profits and start buying and investing more in robots and/or AI, it will lead to an increase in demand for robots and AI and therefore an increase in demand for code developers and engineers to create more of them. This means that the price of their labour will increase and hence their wages also increase meaning that those highly skilled workers will have an increased standard of living. With low-skilled, labour-intensive job wages decreasing as they are demanded less, employment in this sector falling due to being replaced by robots, and high-skilled workers receiving increased wages and increased employment due to the higher demand for them, it means that as a whole for the economy, there becomes a bigger inequality in standard of living between individuals as the workers who have previously already been paid high wages receive even higher wages now and the traditionally lower-income worker receiving even lower wages and further facing unemployment.

Here we can see:

-As the Demand for high skilled workers increase (D shifting outwards to DH) their wages also increase from (W up to WH).

-And as the demand for low skilled workers fall ( D shifting inwards to DL) their wages fall (W down to WL).

Although there is a significant impact due to the introduction of the employment aspect of the economy, we may not know the full magnitude of the impact. It could potentially be a smaller impact than we thought for many reasons. One of the main reasons is that some sectors of employment may not be affected, one example of this is in the healthcare sector, doctors rely on reacting on their patients’ emotions and using physical touch to diagnose the issue of their patient and then further acting upon it to fix the issue/illness such as feeling the chest with their hand to see if there is any irregular breathing. If the patient requires surgery to fix their breathing issue then a doctor would still need to use physical touch to operate. The robots and AI would be unable to diagnose the problem with the patient in the first place as technology currently doesn’t allow the robot to, The robots can’t feel the patients breathing and wouldn’t be able to detect any irregularities in their breath. So due to current limitations on technology robots and AI would not have much of an effect on some sectors.

An issue that can be seen with the spike in unemployment due to the introduction of robots and AI is that government spending will increase. The workers who have been made redundant are part of involuntary unemployment because they lack the skills that can benefit the economy, meaning they are structurally unemployed. These unemployed low-skilled workers will have to receive benefits as they otherwise will have no source of income since benefits are paid by the government as a whole government spending increases. On top of benefit payouts, these low-skilled workers will have to receive training to better their skills to find new jobs and become employed again and switch between jobs, this training will come at a further cost to the government. It is a huge opportunity cost for the government since they have to sacrifice spending on other sectors to subsidise the training of workers. Increasing government spending even more. Although in the long run, these new high-skilled workers will be receiving higher pay due to them working higher-skilled jobs that are in higher demand, meaning that there would be higher tax revenue for the government, in the short-term government spending as a whole will rise.

Ultimately, there are many consequences of the introduction of AI and robots on the economy and more specifically the area of employment, many positive such as workers’ capabilities as a whole growing as they are forced to better their skills for this new demand of high skilled workers or the fact that in the long term, there is potential for government revenue to increase which could lead to overall a better standard of living. However, I believe after weighing both positive and negative that the introduction would do more harm to the economy, many people will inevitably become redundant and require further benefits to support them weighing down the government by using resources that could be spent elsewhere to improve society’s quality of life rather than individuals. As well as the higher-skilled minority to further grow in income. Overall, this creates income disparity which is bad for the economy as well as many individuals’ standard of living drastically falling as they no longer have a job.