Artificial intelligence and employment: maximising the benefits and minimising the negatives

Banco de España Blog

Throughout history, the combination of technological advancements and workers adapting to them have been the mainstays of productivity gains, economic growth and improved living standards. That said, you might be concerned that artificial intelligence (AI) could one day replace your job. How technological changes influence employment depends on the availability of retraining opportunities for workers and a range of institutional factors. How will AI affect the labour market? What can be done to minimise the costs and maximise the potential benefits?

There are three mechanisms by which technology determines levels of employment, its composition and labour conditions, such as wages and hours (see Figure 1):

• Boosting productivity for some occupations or workers with specific skills, raising demand for their labour.
• Displacing certain workers due to automation, decreasing the demand for such labour.
• Creating new jobs that require new professional skill sets, thereby increasing labour demand and employment in such roles.

Figure 1
THE IMPACT OF THE TECHNOLOGICAL CHANGE ON EMPLOYMENT

SOURCE: Banco de España.

A new technological revolution is now under way, this time driven by advancements in robotics and AI. Tasks that were once the sole domain of humans are already being performed autonomously by machines and algorithms, and not just routine or specialised tasks. This technological revolution, much like those before it, has raised fears over the potential for job destruction (the displacement mechanism) and whether the new jobs created (the productivity and new jobs mechanisms) will counterbalance those losses.

These changes are taking place against a backdrop of healthy labour markets. Yet, in Spain, structural weaknesses persist despite the robust employment growth. For instance, Spain not only has high unemployment (nearly twice the European average), but also faces a labour shortage in certain occupations. This is further complicated by an ageing population, which has important implications for employment and productivity.

All this raises three key questions, that we address below.

How will the new technologies affect employment?

Clearly, robots and AI will be capable of handling an ever-growing number of productive tasks. However, it remains uncertain if they will boost productivity and employment or, conversely, lead to job destruction.

Some evidence (see Chart 1) suggests that the share in employment of the occupations most exposed to these new technologies has increased. This indicates that the positive employment effects of productivity gains, driven by complementarity between technology and human labour, and the new jobs created could outweigh the adverse effects of machines replacing workers.

Recent evidence indicates potential complementarity between the new technologies and human work, but it is still too early to draw definitive conclusions

Chart 1
IN EUROPE, THE JOBS MOST EXPOSED TO NEW TECHNOLOGIES HAVE GAINED EMPLOYMENT SHARE

SOURCE: Albanesi, Dias da Silva, Jimeno, Lamo and Wabitsch (2023)
NOTES:
-Each dot represents the regression coefficient, i.e. the conditional correlation, between the potential AI exposure of the various jobs in a country and the changes in their share in total employment from 2011 to 2019. The whiskers show the standard error range for a 95% confidence interval. Where the whiskers intersect with the zero line, the effect is not statistically significant.
-The result estimated for Europe is the coefficient for the pooled sample of countries.

However, there is a great deal of uncertainty. In particular, it is too soon to predict the reach and impact of new generative AI models, capable of performing creative and innovative tasks that were once exclusive to humans. At present, the effects of these new technological developments on employment do not appear significantly different from those of previous revolutions, which primarily increased the productivity of higher-skilled jobs.

Which professional skills will be most in demand?

Education is the key means of adapting workers' skills to the new technologies. Working with robots and AI algorithms will likely require stronger training in science, technology, engineering and mathematics (STEM), as these fields provide a deeper grasp of how AI works.

While this is the majority view, some think that workers in the technology sector might be shooting themselves in the foot by promoting AI advancements that could eventually end up taking their jobs. According to this theory, creative, empathetic and managerial skills will be the most sought after in the future, as they are less replaceable by technology and AI in particular. This includes, for example, roles in communication, customer service or medical care.

In any case, the implications of robotics and AI for skills training go beyond a shift in the relative importance of the different study fields. As general-purpose technologies (GPTs), they affect all kinds of jobs and activities, irrespective of the qualifications needed to perform them.

Moreover, the new technologies call for more horizontal and versatile skills, which are hard to acquire without other skills provided only by the education system.

For all these reasons, curricula for both vocational training and university education should be tailored to the demands of the new technologies, so that their complementarities with human labour can be fully leveraged. And, given the speed of AI development and the uncertainty it entails, it is urgent to equip education managers and decision-makers with the necessary tools and flexibility to respond swiftly. But there has been little progress to date.

Which policies should be strengthened?

The more effectively workers are able to adapt to the new demands of the job market, including through greater mobility, the more positive the impact of technological changes on employment and productivity will be. Figure 2 sets out a list of policies that can be adopted in this area.

The more effectively workers are able to adapt - which requires bolstering the educational system and employment policies -, the more positively the technological revolution will impact employment

Figure 2
IMPLICATIONS OF TECHNOLOGICAL CHANGE FOR LABOUR MARKET POLICIES

SOURCE: Banco de España.

In addition to the education system, labour market policies will be crucial in helping workers to adapt:

• Active policies, aimed at helping people to find employment, will be necessary for workers to develop their skills in the new technological landscape.
• Passive policies, which provide support to the unemployed, should protect displaced workers without reducing incentives for re-entering the labour market.
• The institutional framework of the labour market should promote the reallocation and mobility of workers across sectors and occupations without hindering the adoption of the new technologies in production processes.

Although it is still early to predict the impact of the ongoing technological revolution on employment, it could be quite substantial. We should therefore prepare in advance, with all due caution, for such a scenario. Only by doing so can we hope that the new technologies will drive economic growth without negatively affecting employment opportunities or widening economic inequalities.