Category: Labour economics

Generative AI: degenerative for jobs?

Edward Egan

Headlines warn of a looming ‘jobpocalypse’, but the reality is more complex. Rather than simply causing a wave of job losses, the economic literature suggests generative AI could influence the labour market through several – potentially offsetting – channels: productivity gains, job displacement, new job creation, and compositional shifts. The balance between these effects, rather than displacement alone, will shape AI’s aggregate impact on employment. The latest research suggests that overall effects remain limited so far, but there are some early signs of AI’s impact. I find that, since mid-2022, new online vacancies in the most AI-exposed roles have decreased by more than twice as much as the least exposed group. This highlights the need for ongoing monitoring as AI adoption accelerates.

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How do firms adjust to falls in demand?

Srdan Tatomir.

How do firms response to falls in demand for their products in the real world?  Do they cut wages?  Or are they able only to freeze them?  What other methods can they use to adjust their labour costs?  And does any of this matter? The answer to the final question is emphatically yes. How firms adjust the quantity and cost of their labour input, particularly in response to a downturn, is relevant for monetary policy. If firms are unable to cut wages – what economists call ‘downward nominal wage rigidity’ (DNWR) – then they have to reduce the number of employees, increasing unemployment, further depressing output and  weighing on inflation.

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