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Will artificial intelligence take away all of our jobs or just most of them? Or will AI be like humanity’s past innovations, causing a shift of activity but not a net loss of jobs? This article will address the big picture of jobs, while later articles will delve into specific occupations and industries that will be most affected by recent advances in AI.
 

Past Technological Innovation

Farming was the dominant occupation in 1820, covering 72% of those with gainful work in the United States. Now, fewer than two percent of workers are in agriculture. But we do not have 70% unemployment because of the lost farm jobs. Greater productivity in agriculture coincided with a higher standard of living for most of the population, leading to increased demand for non-agricultural goods: clothing and household goods at first, health care, and other services later.

The industrial revolution meant increased productivity of factory workers. That reduced the prices of manufactured goods, stimulating the number of products that the public bought. For the first time in history, everyday people owned multiple sets of clothing. Lower prices for necessities also enabled people to shift some of their consumption spending to discretionary products.
 

Losers From Technological Change

This simple story, however, masks some genuine problems. Not everyone who lost a job found gainful employment at a good wage elsewhere. The Luddites illustrate this, with a twist that few people know about. The common story is that connecting weaving looms to water power enabled more cloth to be produced with much less labor, triggering job loss for the weavers. One of them, Ned Ludd, smashed machinery in a factory, according to legend. Other weavers followed that example and protested against factory automation.

The rest of the story began some years earlier, as related to Virginia Postrel’s engrossing book about textiles and economic development. Production of thread required spinning wheels driven by manual labor. Thread was the limiting factor in the production of cloth. But then spinning wheels were connected to water power, vastly increasing productivity. With thread much cheaper, weaving thread into cloth became far more profitable. Demand for weavers rose, and for a generation, they earned unusually high wages. Then the same technology that enabled weavers to earn more took away many of their jobs as their looms were connected to water wheels.

The technological change raises productivity and living standards, but some people end up worse off than before because their specialized skills become less valuable. That will be true about artificial intelligence.
 

Adjustments to Economic Dislocation

Some people will recover quickly, and others won’t. In many past technological changes, geographic mobility helped people respond to the change. The shift from agriculture to factory production benefitted people willing to move from rural communities to industrial cities. But those who remained behind found farmwork paying less.

Flexible skill development also helped people adjust to change. In the 1990s, computer programmers who only knew how to use COBOL on mainframe computers fared less well than those who learned modern programming languages for microcomputer applications. So flexibility in location and skills enables adjustment to change.

Those who suffer from technological change may be partly responsible for their own plight, but keep in mind the difficulties of a person with a family moving to a new region, or an older worker investing time and effort to learn new skills. It’s inevitable that some people will choose other values above money income, values such as proximity to family and friends, and avoidance of difficult studies with an uncertain payoff. People make choices about what they perceive to be a good life, and sometimes high income is not the top priority.

The effects of technological change will depend on the social safety net: the extent to which we decide that public resources should be used to cushion the change. But we must keep in mind that transfer payments cause disincentives to further work on the part of both taxpayers and benefit recipients. Arthur Okun explained the problem: “The money must be carried from the rich to the poor in a leaky bucket. Some of it will simply disappear in transit, so the poor will not receive all the money that is taken from the rich.” The leaky bucket is a metaphor for the economic effect of disincentives, plus the administrative costs of social welfare programs. So public policy will affect the distribution of harm and benefits as well as the net amount of benefit.
 

Economic Gains from Artificial Intelligence

On the plus side, artificial intelligence will make goods and services less expensive. Right now coding projects, such as websites, take less programmer time than a year ago. At first, the programmers pocketed the benefits of their faster work, but pricing will eventually come down so that customers benefit. A wide range of activities is now faster to produce, including writing marketing copy and answering customer service inquiries.

Gains will spread to many other sectors. Consider the cost of a consumer appliance. Handling buyers’ questions and possible returns is an expense of doing business. AI will help consumers quickly learn to use their appliance and solve what problems they may be having, at a lower cost to the company.

In health care, some clinics use AI to help doctors document patient visits, saving time and improving accuracy. In the near future, patient inquiries may be routed to an advice nurse, nurse practitioner, or physician based on a chatbot’s conversation. This could lower costs and improve care, especially in underserved communities.

Although some may wonder whether cost savings will be passed on to consumers, economic theory and research show that most of the gains from innovation accrue to customers, not inventors. Describing his detailed research, Nobel laureate William Nordhaus wrote, “… only a minuscule fraction of the social returns from technological advances … was captured by producers, indicating that most of the benefits of technological change are passed on to consumers ….”

The people of the world will benefit, in the aggregate, from the improvement of artificial intelligence. The gains won’t be uniform across people and communities, with some small portion actually hurt by technological change. The next article in this series will describe how to assess the near-term winners and losers.

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