AI may lift wages — then crush them, professors say

A recent study from the Brookings Institution highlights a potential wage trajectory influenced by the rise of artificial intelligence. Researchers argue that the ongoing AI revolution may mirror traditional economic cycles, particularly in the realm of wages. Initially, the integration of automation could lead to increased pay as workers leverage advanced tools to enhance productivity. However, as AI systems become capable of handling an increasing number of tasks, the demand for human labor in those sectors may diminish. This shift could force workers into lower-paying or slower-growing roles, ultimately negating any early wage gains. Konrad Kording, a professor at the University of Pennsylvania, and Ioana Marinescu, an associate professor at Penn's School of Social Policy & Practice, conducted simulations indicating that wages in the intelligence sector may rise initially but could later decline as automation takes hold. To model the potential impacts of AI on the workforce, the researchers created an interactive framework that illustrates the transition from human-driven to machine-driven intelligence. Their findings suggest a sharp increase in wages as productivity surges, followed by a plateau and subsequent decline as automation becomes more prevalent. While overall output may continue to grow, the benefits appear to increasingly favor capital over labor. As cognitive tasks become automated, workers may find themselves shifting toward lower-growth physical occupations such as construction and caregiving, leading to a decrease in wages. This creates a distinct hump-shaped wage curve: a brief period of wage increases followed by a correction as the digital economy begins to outpace the physical one. The authors emphasize a balanced perspective, steering clear of both extreme optimism about limitless abundance and fears of widespread job loss. They introduce the concept of "intelligence saturation," suggesting that while AI can enhance economic productivity, its long-term benefits may wane due to the continued reliance on human labor and physical tools. To mitigate potential adverse effects on workers, Kording and Marinescu recommend a more measured approach to automation, alongside investments in physical capital to ensure that human labor remains viable despite the encroachment of digital technologies. They also advocate for taxing virtual alternatives to in-person services to help protect industries from being undermined by AI, echoing sentiments similar to Senator Bernie Sanders' proposal for a 'robot tax' aimed at companies that replace jobs with automation.