How much is AI actually affecting the workforce?

NPR.

This is the indicator from Planet Money.

I'm Darian Woods.

And I'm Waylon Wong.

A couple of months ago, Jim Farley, the CEO of Ford Motor Company, took the stage at an event called the Aspen Ideas Festival.

He was there to talk about the future of the economy and the importance of skilled trades, and as he sees it, something of a crisis.

Hiring an entry worker at a tech company has fallen 50%

since 2019.

Is that really where we want all of our kids to go?

And then Jim Farley kind of just drops in this huge prediction.

Artificial intelligence is going to replace literally half of all white-collar workers in the U.S.

Half of all white-collar workers.

That is quite a pronouncement from the CEO of a major company.

And Jim Farley's Farley's not the only executive talking in these dramatic terms about how AI might upend the economy as we know it.

Like it could be a 21st century version of the Industrial Revolution.

You mean like a generations-long transformational era of human history that will change life forever for you and me?

Well, we only have nine minutes.

So throughout the show, we will talk to an economist who's found one small but fascinating way to measure the impact of AI on workers.

That's coming off after the break.

We sum up all of human progress.

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When it comes to AI and the future of work, we've seen evidence that AI is doing what Ford CEO Jim Farley talked about.

It's replacing jobs in fields like coding and customer service.

We've also seen how AI can help people be more productive or efficient at work.

We did a recent episode where we heard from listeners who are using AI for manual or tedious tasks like writing emails and analyzing data.

This is a burgeoning area of research for economists like Laura Veldkamp.

She's a professor at Columbia Business School, and the debate over whether AI is replacing or complementing jobs got her mental wheels turning.

I started thinking about the process of knowledge production because AI doesn't produce cups and plates and goods, it produces knowledge.

And so in thinking about the knowledge production process and how it was changing, I was looking to history to guide my thinking about, well, when else have we seen major changes in production processes?

And it seemed like the Industrial Revolution was the most natural parallel.

The Industrial Revolution took more than a century to unfold and spanned multiple continents.

It is really difficult, probably verging on irresponsible, to try to summarize such a large, complex era of human history.

But that's what Josh Freeman is here for.

I'm a historian and I studied the history of labor and industry in particular.

If you had lived during this period of history, what job do you think you would want?

Ah, well, I would like to be a rentier where you didn't have to have a job.

If You just lived off the labor of your tenant farmers or the interest off of your bonds.

You know, early industrial work was mostly not pleasant.

Passive income is the dream, Darian.

Or at least so many emails are informing me in my spam folder.

Those are sent by AI.

Anyway, Josh says that when you zoom out on the Industrial Revolution, you can see how it both improved and diminished human life on practically a cosmic scale.

If you look at England, which is usually considered the first place for the Industrial Revolution, in the mid-18th century,

1750, the average life expectancy was less than 40 years.

Today, it's around 80.

So that's the most basic measure, and you've doubled.

On the other hand, you and I and everyone else is facing a planetary crisis from the Industrial Revolution that may

seriously impact the future of our species.

So, you know, in the biggest scale, you can see both the upsides and the downsides.

Of course, this increase in life expectancy was not a straightforward or linear path.

People's health actually got worse as they moved into crowded, polluted cities and worked dangerous factory jobs.

It took generations of organized labor activity, government regulation, and advancements in healthcare to change these conditions.

Ultimately, Josh says the Industrial Revolution redefined people's relationship with their home life, with nature, even with their basic sense of time.

And it's too early to know whether AI is upending human civilization in the same way.

But economists like Laura Veldkamp are trying to study AI-related changes in smaller doses.

And they're doing this by zooming in on things they can measure.

Laura set out to capture essentially how bosses and workers are splitting profits.

There is a technical term for this.

It's called the labor share of income.

So think about the money that a business makes.

Some of that money comes back to workers in the form of wages and benefits.

And that percentage is the labor share of income.

It both represents how important labor is and the output, what share of value it's adding, but it also represents what share of the income that labor should receive.

Laura says the labor share of income fell during the Industrial Revolution.

This is because the adoption of new machines meant less human labor went into producing goods.

Laura wanted to know if this is happening with AI and today's knowledge workers.

So she and a colleague studied workers in the financial sector.

They picked that industry because it's been an early adopter of AI.

There is entry-level work that Laura thinks will require less human involvement over time, like maintaining databases.

And then moving up the career ladder, AI is more of a complement than a substitute.

For example, Laura says workers at financial firms are using AI to analyze data to make investment decisions.

And here's what Laura and her colleague found in their research.

They predict that AI could lead to the labor share of income in knowledge work dropping by 5%.

So if you think of profits or GDP as a pie

among firms that are adopting AI, workers are receiving a smaller slice of the overall pie.

Laura says this 5% decrease is similar to what happened to the labor share of income during the Industrial Revolution.

So that's one potential parallel between then and what's happening with AI today.

And Laura says it's not necessarily bad news for workers that they're getting a smaller slice of the pie.

And that's because the overall pie is getting bigger.

We find that a worker who has AI skills in the financial sector is making about $22,000 a year more.

than somebody who doesn't.

So they may be getting a smaller slice of the pie at their firm, but their firm is likely to be much more profitable.

And so as a result, that smaller slice is still more take-home pay.

A smaller slice of a bigger pie.

So this gets us into big questions about fairness.

Like how should workers and corporations split profits?

Laura says the Industrial Revolution offers lessons here too.

What we saw in the Industrial Revolution is that there were a few firms that adopted these new technologies and became monopolists.

This was the era of robber barons, right?

And, you know, great capitalists.

And they were insanely rich at a time when most people were desperately poor.

And so I think there's a risk that we could follow the same path here, where there are early adopters that become monopolists and have an enormous amount of market power and squeeze us as consumers and us as workers to get most of the rents.

Concerns about a small group of companies controlling those rents or, you know, the AI pie are on Josh Freeman's mind too.

He points out that in the U.S., there used to be lots of automakers and steel makers and airplane manufacturers.

These industries got concentrated over multiple decades.

Josh says, so far, AI seems to be different.

We're starting from extreme concentration.

You know, that's the way it's beginning.

So that is a somewhat different dynamic, kind of monopolized from the get-go.

And will that shape the way this unfolds across the society and who benefits?

You know, those are still very open questions.

Open questions that Laura says policymakers and regulators will have to grapple with.

You know, if AI is going to make all those companies more productive and wealthy, how should those spoils be divvied up?

And if the Industrial Revolution is any guide, figuring out how to share this pie could take generations of struggle between government regulators, bosses, and workers.

And computers.

Oh, I forgot about the computers.

Yes, they're waiting in the wings.

Do not cut them out.

This episode was produced by Cooper Katz McKim and engineered by Robert Rodriguez.

It was fact-checked by Sarah Juarez and edited by Patty Hirsch.

Kicking Cannon is our show's editor and the indicator is a production of NPR.

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