Topic the impact of ai on labor markets worldwide a macroeconomic analysis of job displacement

VIET NAM NATIONAL UNIVERSITY OF HO CHI MINH UNIVERSITY OF ECONOMICS AND LAW

Subject: Macroeconomics

Topic: The Impact of AI on Labor Markets Worldwide: A Macroeconomic Analysis of Job Displacement

Course ID:222BA9207

1 Trần Dương Thanh Phong K214111977

Table of Content

I Introduction 4

1 Brief overview of AI technology and its potential implications on labor markets 4

2 Importance of understanding AI's impact on the labor market in developing countries 4

3 Examine the macroeconomic implications of AI technology on labor markets 5

II Overview of the Global Economy and Labor Market 6

1 Global economic growth and development in recent years 6

2 Key industries and employment sectors 6

3 Existing labor market challenges 9

III AI Adoption in Global Key Industries 11

1 Overview of AI technology adoption in industries 11

2 Assessment of AI's potential to enhance productivity and efficiency in these industries 12

3 Identification of vulnerable sectors with higher potential for job displacement due to AI adoption 14

IV Estimating Job Displacement across the Globe 15

V Macroeconomic Implications of Job Displacement 16

1 Introduction 16

2 Unemployment Rate and Labor Force Participation 16

3 Aggregate Demand and Economic Growth 20

4 Income Distribution and Social Welfare 22

VI Policy Responses and Recommendations 22

1 Policy Responses 23

2 Recommendations 23

VII Conclusion 23

VIII References 25

List of Figures

Figure 1 Fastest growing vs Fastest declining jobs 4

Figure 2 Overview of The Labor Market 12

Figure 3 AI’s Potential impact on jobs 14

Figure 4 Current Unemployment Rate 17

Figure 5 Current Labor Force Participation Rate 18

Figure 6 Aggregate demand graph 21

Figure 7 Group assessment 25

I Introduction

1 Brief overview of AI technology and its potential implications on labor markets

Globally, the impact of AI technology on industries and labor markets has been revolutionary It automates mundane duties, allowing employees to focus on more important responsibilities Although job displacement is possible, it also creates opportunities for new positions that emphasize creativity and problem-solving Adapting to these changes requires the acquisition of new skills and the consideration of ethical issues AI's impact on labor markets presents individuals and industries with a range of challenges and opportunities

Figure 1 Fastest growing vs Fastest declining jobs

2 Importance of understanding AI's impact on the labor market in developing countries

Based on their findings, Leon and Walt (2000) conclude that artificial intelligence has the potential to eliminate up to 1.2 billion jobs worldwide The impact of automation will vary across industries, with manufacturing, transportation, and customer service facing significant disruptions and job displacement, while sectors such as healthcare, finance, and data analysis are anticipated to adopt AI-augmented decision-making and data-driven insights The World Economic Forum emphasizes the need for workforce adaptation in an AI-driven economy, noting that

approximately 54% of all employees will require reskilling and upskilling initiatives by 2022 in order to satisfy the changing requirements of employment roles

Leon and Walt's (2000) study shows that emerging countries are most likely to be hurt by technology, which could lead to more unemployment and poverty Moreover, the lack of access to education and training programs in many developing countries may exacerbate the skills gap, impeding the ability of individuals to adapt to the changing demands of the labor market and resulting in a widening income disparity and social inequality For policymakers, businesses, and individuals in developing countries to mitigate the potential negative effects of automation while maximizing AI's potential for economic growth and development, they must develop a comprehensive understanding of the challenges and opportunities presented by AI

3 Objectives

Objective: To examine the macroeconomic implications of AI technology on labor markets worldwide

AI and Job Displacement:

AI technology, including machine learning algorithms, robotics, and automation systems, has the capacity to perform tasks traditionally carried out by human workers While AI offers numerous benefits, such as increased productivity and efficiency, it also poses challenges in terms of job displacement As AI systems become more sophisticated and capable, certain tasks and roles can be automated, potentially leading to the displacement of human workers

Macroscopic Analysis:

Various studies have examined the macroeconomic implications of AI on labor markets For instance, a comprehensive study conducted by the World Economic Forum (WEF) in 2022 projected that AI and automation technologies could displace around 85 million jobs globally by 2025 while creating 97 million new roles with different skill requirements The report emphasized the need for reskilling and upskilling efforts to facilitate the transition of workers into new roles compatible with AI technology

Another study by the Brookings Institution in 2021 focused on the United States labor market and estimated that AI and automation could potentially impact up to 36 million jobs, particularly in sectors that involve routine and predictable tasks The report emphasized the importance of policy interventions to mitigate the negative effects of AI-driven job displacement and facilitate the creation of new employment opportunities

Challenges and Opportunities:

The impact of AI on labor markets extends beyond job displacement AI technology also offers opportunities for the creation of new employment opportunities and the transformation of existing roles As AI systems become more widespread, there is a growing demand for skilled professionals capable of developing, maintaining, and managing AI technologies Moreover, AI has the potential to enhance human capabilities, giving rise to hybrid roles where humans collaborate with AI to achieve higher levels of productivity and innovation These developments present both challenges and opportunities for individuals and industries in adapting to the changing landscape of work

II Overview of the Global Economy and Labor Market

1 Global economic growth and development in recent years

In recent decades, the global economy has witnessed significant expansion, providing abundant opportunities across various sectors The World Bank reports remarkable growth in the world gross domestic product (GDP), with figures soaring from approximately $23.5 trillion in 1990 to around $87.7 trillion in 2019 Developed countries, in particular, have seen key industries evolve, surpassing their past economic outputs, thanks to technological advancements and innovative solutions addressing their challenges Establishing diverse, vibrant, and competitive industries, employment sectors, and labor markets becomes imperative for sustainable economic prosperity and overall development.

Factors such as technological advancements, shifts in trade dynamics, and evolving policy frameworks have influenced the trajectory of global economic growth and development In 2018, the global GDP experienced notable growth of 3.6%, which slightly moderated to 2.9% in 2019 However, the world economy faced a significant contraction of -3.5% in 2020 due to the unprecedented impact of the COVID-19 pandemic Despite these challenges, there are promising signs of recovery, with a projected strong rebound of 6% growth in 2021, followed by a more moderate expansion of 4.4% in 2022 As economies rebuild post-pandemic, it becomes crucial to prioritize sustainable and inclusive growth strategies that foster job creation, innovation, and resilience By embracing technological advancements, investing in research and development, and implementing supportive policies, countries can enhance their competitiveness, drive economic growth, and pave the way for a prosperous future.

2 Key industries and employment sectors

Various industries and employment sectors have been affected by the introduction and adoption of AI technology While the impact can vary across countries and regions, some sectors have experienced significant transformations

The technology industry is experiencing remarkable growth, becoming one of the fastest-growing sectors in the global economy According to Statista, the global information technology market is projected to reach $5.2 trillion in 2021, up from $4.8 trillion in 2020 This expansion has propelled companies like Google, Apple, and Microsoft to become some of the most valuable and profitable businesses worldwide Apple, with a market capitalization exceeding $2 trillion, holds the title of the world's most valuable company, followed by Microsoft at over $1.8 trillion and Google's parent company, Alphabet, at over $1.5 trillion.

The technology industry has not only generated substantial economic value but has also created numerous employment opportunities Fields such as software engineering, design, and development have witnessed significant growth The U.S Bureau of Labor Statistics forecasts an 11% employment increase in computer and information technology occupations from 2019 to 2029, surpassing the average for all occupations Moreover, technology has facilitated the international reach of businesses, enabling them to offer products and services to customers worldwide E-commerce platforms like Amazon and Alibaba have played a pivotal role in connecting businesses with a global customer base Global retail e-commerce sales are projected to rise to $4.9 trillion in 2021, up from $3.9 trillion in 2020, according to (Nie et al., 2021).

The impact of AI technology extends beyond the technology industry itself In manufacturing and industry, AI-driven automation systems have gained prominence, leading to increased efficiency and productivity The International Federation of Robotics reports a record-high of 381,000 global robot installations in the manufacturing sector in 2017, representing a 30% increase from the previous year

(Shah et al., 2023) The services sector has also witnessed AI's influence, particularly in customer support and engagement, where chatbots and virtual assistants automate interactions and improve response times Gartner predicts that by 2022, AI technologies will be involved in 70% of customer interactions within the services sector (Choudhury, 2021) Additionally, AI's potential extends to transportation and logistics through autonomous vehicles, route optimization algorithms, and demand forecasting systems Choudhury estimates that up to 60% of existing jobs in the transportation sector could be disrupted by autonomous vehicles.

The integration of AI technologies in the manufacturing sector has had a significant impact on employment By implementing robots and AI-driven automation systems, the manufacturing industry has experienced improved production processes and increased efficiency According to the International Federation of Robotics (IFR), there has been a notable rise in global robot installations in manufacturing, indicating a growing reliance on AI-driven automation systems This shift has created new

employment opportunities in roles related to managing and maintaining automated machinery, overseeing quality control processes, and optimizing production workflows.

In the services industry, the adoption of AI technologies has revolutionized customer support and engagement Chatbots and virtual assistants have become prevalent in automating customer interactions and enhancing response times This trend is expected to continue as AI technology advances A study by Gartner predicts that by 2022, around 70% of customer interactions in the services sector will involve AI technologies (Kaur et al., 2022) Consequently, there is an increasing demand for professionals with expertise in customer experience management, natural language processing, and AI implementation, creating employment opportunities in these areas.

The transportation and logistics industry are on the verge of transformation due to advancements in AI Autonomous vehicles, route optimization algorithms, and demand forecasting systems hold immense potential to revolutionize this sector However, the adoption of autonomous vehicles may disrupt a significant portion of existing transportation jobs, as highlighted in a report by (Hidaka & Shiga, 2018) Nonetheless, this disruption also presents new employment opportunities in the development and management of autonomous technologies, as well as roles related to logistics coordination and supply chain analysis.

In the healthcare industry, technological advancements, including AI, have played a crucial role in improving services and treatments Electronic health records (EHRs) have facilitated effective management of patient information and care coordination The rise of telemedicine and digital health solutions has further increased accessibility and convenience for patients The integration of AI technologies in healthcare has created employment opportunities for professionals skilled in utilizing and implementing these technologies to enhance healthcare services The agriculture industry has undergone significant changes driven by AI and technology Precision agriculture technologies, powered by data analytics and machine learning, have enabled farmers to optimize crop yields, reduce waste, and improve overall productivity while minimizing environmental impact Additionally, the growing demand for organic products has led to an increase in organic farming practices This shift has created employment opportunities in organic farming and food production, particularly in emerging markets where the agriculture sector plays a vital role in job creation.

In conclusion, the integration of AI technologies in manufacturing, services, transportation, healthcare, and agriculture sectors has had a notable impact on

employment While AI-driven automation may disrupt certain job roles, it simultaneously creates new opportunities for individuals with specialized skills in managing AI systems, optimizing processes, and adapting to the evolving technological landscape Embracing adaptation and upskilling within these sectors will be crucial in navigating the changing employment landscape driven by AI advancements.

3 Existing labor market challenges

Global economic growth and development have given rise to several challenges, particularly concerning the nature of the labor force Although it has created new job opportunities, the increasing technological advancements have also limited employment options and affected the traditional labor force These challenges include inadequate skills development opportunities, unemployment, gender discrimination, and unequal wages The lack of opportunities for skill development results in a shortage of skilled workers in specific sectors, leading to high levels of unemployment, particularly among women and young people, who are often the groups that need jobs the most Gender discrimination also leads to a wage and employment gap between men and women, perpetuating existing disparities and limiting women's access to higher-paying jobs (Anderson & Shapiro, 1996) Leading to the widening income gap between labor and capital This has resulted in low wages for workers and has led to an overall decrease in the quality of life for many workers Another challenge is the increase in Global economic growth and development in recent years has brought about various challenges in the labor market around the world Factors such as technology, automation, and global competition have resulted in significant changes to employment patterns and the availability of jobs This shift has led to structural changes in the labor market that affect specific individuals more than others On the one hand, technology is enabling businesses to do more with fewer employees Automation is now being used to replace labor-intensive tasks, resulting in the reduction of jobs in traditional sectors such as manufacturing and agriculture This trend is particularly noticeable in emerging markets where technology is being adopted more quickly than elsewhere On the other hand, global competition is creating challenges for existing workers Companies in many countries now face stiff competition from abroad, leading to job losses and wage stagnation For example, countries with higher costs of labor are now less attractive to multinationals, resulting in workforce reductions These trends are having a significant impact on the labor market Workers in sectors that are being disrupted by technology or global competition face challenging job prospects In some countries, this is causing an increase in stagnation rates and causing unemployment to rise

The introduction of AI technology into labor markets presents various challenges that need to be addressed to ensure a smooth transition and inclusive economic growth One significant challenge is job displacement, as automation technologies have the potential to replace certain job roles According to a study by the World Economic Forum (WEF), around 85 million jobs globally could be displaced by automation by 2025 However, it is important to note that the same study also projects the creation of around 97 million new jobs with different skill requirements, potentially offsetting some of the job losses.

Another challenge is the skill mismatch and the need for reskilling The adoption of AI technology often requires a workforce with specialized skills As technology advances, there is a growing demand for workers who can develop, implement, and manage AI systems However, there may be a mismatch between the skills demanded by the job market and the skills possessed by the workforce Efforts to reskill and upskill individuals to meet the evolving demands of the labor market are crucial in addressing this challenge.

Gender discrimination also contributes to the challenges faced in labor markets, leading to a wage and employment gap between men and women, perpetuating existing disparities and limiting women's access to higher-paying jobs This discrimination hinders women's career advancement and reduces their economic opportunities Addressing gender inequality in the labor market is crucial for promoting inclusive growth and maximizing the potential of the entire workforce In addition, the impact of AI on labor markets can contribute to inequality and job polarization Lower-skilled jobs that are more susceptible to automation may experience greater displacement, while higher-skilled jobs that involve complex decision-making and creativity may see increased demand This polarization of job opportunities can exacerbate income inequality and social disparities.

Moreover, the use of AI technology raises ethical and regulatory challenges Issues related to privacy, bias, transparency, and accountability need to be carefully addressed to ensure the responsible and ethical use of AI in the labor market Global economic growth and development have given rise to several challenges in the labor market, including inadequate skills development opportunities, unemployment, gender discrimination, and unequal wages The lack of opportunities for skill development results in a shortage of skilled workers in specific sectors, leading to high levels of unemployment, particularly among women and young people These challenges, along with the increasing use of technology and automation, have disrupted traditional employment patterns and led to structural changes in the labor market This has affected specific individuals more than others, with technology

replacing labor-intensive tasks and global competition resulting in job losses and wage stagnation These trends have significant implications for the labor market, causing job prospects to become challenging for workers in disrupted sectors and leading to increased unemployment rates in some countries Addressing these challenges requires comprehensive strategies that focus on reskilling, promoting gender equality, and ensuring fair and ethical practices in the use of AI technology in the labor market

III AI Adoption in Global Key Industries

1 Overview of AI technology adoption in industries

AI technology has revolutionized the labor market by introducing automation software and robotics, which have been widely adopted in various industries This adoption has led to improved productivity and efficiency through the utilization of intelligent algorithms and automation Both large companies and Small and Medium Enterprises (SMEs) have benefited from AI technology, experiencing enhanced customer service and operational efficiency, resulting in cost reduction and increased profits

The advancement of AI technology has brought about profound changes in business operations across different sectors in the 21st century Even in healthcare and finance, law, and retail, AI adoption has permeated numerous industries The labor market has also experienced the impact of AI, with its integration into recruitment processes, job matching based on skills and qualifications, and the introduction of AI chatbots for customer service and speech recognition (Ma & Yannelis, 2021) AI is a valuable tool for analyzing large datasets, including employee performance reviews and customer survey responses, to identify trends and areas for improvement By automating mundane tasks, AI technology liberates employees' time, allowing them to engage in more meaningful and productive work.

AI technology has also provided businesses with deeper insights into customer needs and preferences, contributing to a better understanding of customer behavior (Riyanto, 2022) Furthermore, it has increased labor market productivity by automating specific jobs, freeing up human resources for more engaging and complex tasks while also monitoring machine performance to create safer and more efficient work environments Additionally, AI technology automates mundane and repetitive tasks, enabling individuals to focus on more creative and innovative work, helping improve efficiency and detect patterns that are often overlooked by humans, helping identify inefficiencies, and optimizing operations (Chakor et al., 2022) For instance, AI systems analyze customer data to identify optimal strategies for targeting potential customers and understanding purchasing trends, thereby enhancing marketing performance

Figure 2 Overview of The Labor Market

2 Assessment of AI's potential to enhance productivity and efficiency in these industries

Artificial Intelligence (AI) is no longer just a concept but a tangible force in business, the labor market, and other industries AI has the potential to drastically change the productivity and efficiency of labor, extending beyond highly specialized areas to encompass mundane or menial tasks across different industries Through AI, businesses can collect and analyze vast amounts of data from various sources, enabling significant discoveries that enhance overall efficiency and productivity AI also has the potential to develop processes that are impossible or difficult to create with manual labor and automate repetitive tasks, freeing up employees' time for more intellectually stimulating work

AI is currently seeing considerable application across a range of industries, from banking and finance to healthcare, transport, and manufacturing By leveraging complex algorithms, AI technology can enable companies to automate mundane, repetitive tasks, freeing up human employees to focus on higher-value, more creative work This can enable companies to streamline their processes, thus increasing efficiency and results-driven decision-making In addition, AI-competent systems can handle data more efficiently and precisely than human employees, enabling efficient decision-making and improved forecasting AI technology utilizes deep learning and machine learning to assist in the process of calculating statistics, cleaning data sets, analyzing data, and creating detailed visualizations, to aid in the understanding of complex changes in market trends and customer feedback In addition, AI-driven bots

can operate more efficiently than human employees and operate 24/7, allowing for a more continuous and optimized customer experience AI capabilities have been utilized in many industries, with notable results in the healthcare industry, in which AI-driven systems are now an integral part of the healthcare system AI is used for clinical decision support and analysis to detect discrepancies and anomalies that may not be quickly noticeable to the human eye.

The influence of Artificial Intelligence (AI) on productivity and efficacy in the banking and finance industries has received considerable attention in academic research and industry reports (Jaiwant, 2022) AI has brought about transformative changes in these sectors by automating various processes, improving data analysis capabilities, and enhancing decision-making processes.

In the banking industry, implementing AI-powered systems has resulted in the automation of routine tasks such as data entry, transaction processing, and customer inquiries, leading to substantial time and cost savings Using AI algorithms enables the analysis of large volumes of financial data with remarkable speed and accuracy, allowing banks to detect fraudulent activities, evaluate creditworthiness, and make informed investment decisions These advancements not only enhance operational efficiency but also strengthen risk management capabilities.

In the finance industry, the application of AI-driven algorithms and machine learning models has revolutionized investment strategies and portfolio management By analyzing extensive market data, news sources, and social media sentiments, AI systems can identify trends, predict market movements, and optimize investment portfolios This empowers financial institutions to make well-informed and timely investment decisions, leading to improved performance and increased profitability Furthermore, AI-powered chatbots and virtual assistants have become integral in providing personalized customer service in the banking and finance sectors These chatbots can handle customer inquiries, provide account information, and even offer financial advice, reducing the reliance on human intervention and improving response times AI-based natural language processing (NLP) systems also contribute to regulatory compliance by automatically analyzing and extracting pertinent information from legal documents and financial reports

Figure 3 AI’s Potential impact on jobs

3 Identification of vulnerable sectors with higher potential for job displacement due to AI adoption

In recent years, the development of artificial intelligence (AI) has grown at an astonishing rate AI has the potential to transform the labor market in two significant ways: by increasing the potential for automation and job displacement and by replacing jobs with higher-paying, more skilled jobs The issue of job displacement due to AI adoption has long been raised and discussed by governments and industries alike (Niemann, 2021) This concern has become more pertinent in the current pandemic, which has resulted in mass layoffs, increased automation, and workplace disruptions Conducting a study on this issue is significant as it reveals the potential of labor displacement by AI technology and highlights the sectors most vulnerable to job displacement.

Sectors at higher risk of job displacement include low-skill, low-wage jobs such as factory workers, service industry workers, data entry jobs, and retail jobs These sectors are facing a higher risk of job displacement because they are primarily reliant on manual labor and repetitive tasks Due to the fact that manufacturing processes are often repetitive and can be fairly easily automated by machines Furthermore, AI-based robotic systems have been created, which can now operate in a continuous cycle, 24 hours a day, 7 days a week, with no need for human intervention Not at all, these occupations are typically jobs that do not require an educational degree and thus do not offer immense career growth prospects or competitive salaries In addition, industries such as hospitality and travel are also highly vulnerable to AI