T-Ray

Unbalanced Labor Markets

www.epi.org/publication/ai-unbalanced-labor-markets/

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Many of the concerns raised recently about advances in artificial intelligence (AI)—for example, its implications for national security or media disinformation—are outside our areas of expertise. An area we do have considerable expertise to draw on is AI’s potential effect on labor markets and our outlook might surprise some who have followed recent public debates: AI, like most technological advances, is unlikely to be a direct threat to the wages and employment of U.S. workers. Instead, it has the potential to raise these workers’ living standards. Realizing this potential does not hinge on the specifics of AI policy, but instead on restoring the balance of economic power in key markets—especially the labor market.

Being relatively sanguine about the effect of technology and AI on labor markets does not imply that we think labor markets have been working well for U.S. workers. On the contrary, unemployment has been too high and wage growth too slow for decades. But the roots of labor market dysfunction—both past and future—have very little to do with technological changes. Instead, this dysfunction is driven by the concerted policy push to exacerbate the extreme imbalance of power between typical workers and the corporate managers and capital-owners who hire them.

It is important to get the facts and analysis right on the questions of why labor markets have not delivered enough jobs or acceptable wage growth, and what the real threats are to decent jobs in the future. Faddish debates about AI distract attention away from the more fundamental problem of imbalanced power in labor markets, pulling policy in less useful directions.

More specifically, we argue:

  • Interpretations of past episodes of rising wage inequality—whether they were driven by changes in technology or changes in policy, institutions, and norms—differ enormously based on one’s assessment of employers’ ability to exercise power in labor markets. If this power is great, then policy, institutions, and norms have great scope to influence wage inequality. If instead employer power is limited, technological change becomes the major force driving inequality.
  • Technology manifests most directly in measured economic statistics as an increase in productivity—the amount of output generated in an average hour of work in the economy. Productivity growth has not historically been associated with higher unemployment or higher inequality, meaning that worries that technological change could be driving a jobless future have yet to materialize.
  • Economic research claiming that the very rapid rise in wage inequality in the 1980s through the mid-2000s was caused by the rapid introduction of new technologies (mostly the spread of personal computers and other information and communications technologies) has not stood the test of time; few economists today would highlight the impact of technology alone as a driver of this inequality.
  • While it is possible that technology can reduce the demand for specific jobs, these job losses can be more than counterbalanced by expanding employment in other sectors, as long as we maintain aggregate demand.
  • In labor market models that allow for employer power, technological change in and of itself is largely neutral in its effect on the distribution of economic growth. But when employers exercise unbalanced power in wage-setting, they are often able to use new forms of technology to claim more of a firm’s output at the expense of typical workers. However, it is the unbalanced power that is the root of this problem—not technological change per se, which could easily boost workers’ wages if deployed in more balanced labor markets.
  • Given this history of technology and labor markets, there is very little AI-specific labor market policy that will do much to help workers. Instead, policymakers should focus on broader policy levers to boost workers’ leverage in wage bargaining that will aid workers in claiming the potential gains spurred by AI in the future and reclaiming lost ground from past periods of economic growth. AI-specific provisions in workplace negotiations and collective bargaining agreements, of course, make lots of sense. How AI—or any technological tool—can be deployed to raise productivity and foster broad-based wage growth instead of increasing employer control will be a crucial question for many workplaces. But the best policy support for this process that can be given by national policymakers is strengthening worker voice and power, not trying to micromanage how AI is used in specific workplaces.