World Bank: Harnessing the promise of artificial intelligence to achieve shared prosperity

There is some truth to both extremes.

We don’t yet fully understand the effects that AI will have on our economic structure and employment, human potential, and our pursuit of progress, but we can already see that it will drive a technological revolution. This isn’t the first time we’ve seen something like the steam engine revolutionize transportation. Learning from the past, drawing from the present. In the long run, AI will also be able to boost growth and prosperity. Contrary to expectations, there will be some disruption along the way, and at least some industries and occupations will disappear forever.

Goldman Sachs conservatively estimates that up to 300 million full-time jobs will be affected by AI in the next decade, equivalent to about 8.5% of the global workforce. To put this in perspective, for a country like Mexico, this is equivalent to more than 5 million jobs affected, which is more than the entire population of Uruguay. The International Monetary Fund (IMF) estimates that about 40% of jobs worldwide will be affected by AI, and up to 60% of jobs in developed economies may be affected because AI mainly affects high-skilled jobs.

Nonetheless, from a macroeconomic perspective, AI appears to be the long-awaited solution to the global productivity slowdown that has been the root cause of slow growth in developed economies over the past two decades. Goldman Sachs analysts speculate that widespread AI will increase U.S. labor productivity by nearly 1.5 percentage points per year over the next decade. Based on the historical average growth rate of 1.5% per year from 2007 to 2019, this means that productivity growth will more than double, reaching the highest rate since World War II.

While it will be beneficial in the long run, the key question is: what will happen in the next decade? What should society and government do to ensure a smooth transition? In other words, how can we use the creative destruction process of artificial intelligence to achieve shared prosperity?

We have the power to shape the future. The impact on jobs will depend on whether AI replaces or complements workers, which can be affected through fiscal policy, incentives, and regulation. If AI already complements workers, it can enable them to be more efficient, perform higher-quality work, or complete new tasks. Significant further increases in productivity could create new jobs in the same industry or by expanding the scope of activity in related industries. Advances in healthcare and education hold the promise of significantly further improvements in our living standards.

Contrary to expectations, the cost of transition is high, and while we have policy tools and institutions that can effectively mitigate the impact of AI, we also need new ones, including new fiscal policies and regulations, to ensure that productivity gains are beneficial to labor and capital. As Angus Deaton points out in American Economics, redistribution and pre-distribution must be carefully calibrated to ensure that the significant increase in inequality seen in other technological revolutions is avoided and that democratic institutions are protected.

Ultimately, how many jobs are created or destroyed, which categories of workers face the greatest change, how AI promotes automation in various industries, and where those industries are located all depend on the policy choices we make today. Even if advanced economies bear the brunt of the impact, eventually developing economies, where capital and skilled labor are scarce but demographic pressures are high, will also be affected.

While we can’t predict exactly how much AI will change things, we can be sure that it promises to bring about fundamental changes that we can choose to shape. As MIT professors Darren Acemoglu and Simon Johnson note in their book Power and Progress: “Technological progress can only lead to truly shared prosperity when its direction and distribution are no longer firmly in the hands of a small elite.” Let’s work to ensure that everyone can benefit from this latest technological revolution.

Author

Arturo Herrera Gutierrez

Equitable Growth, Finance and Institutions Practice Group

Global Director and Vice President of Global Governance

Jasmin Chakeri

World Bank Macroeconomics

Global Business Manager, Trade and Investment

Nathalie Picarelli

Senior Economist, World Bank