Key Takeaways:
- The impact of artificial intelligence (AI) on labor markets is complex and evolving, with both positive and negative effects on employment, wages, and workforce dynamics.
- Canada’s labor market is exhibiting different trends compared to the US, with slower AI adoption rates and more resilient employment in AI-exposed sectors.
- AI is shaping higher wage outcomes for high-skilled workers and demanding new skill sets from new graduates.
- The impact of AI on wages is nuanced and varies by sector, job type, and skill level, with potential wage premiums for younger workers with AI skills.
- Education and training are crucial in preparing workers for the changing labor market, with a focus on skills that technology cannot easily replicate.
Introduction to AI and Labor Markets
The rapid advancement of artificial intelligence (AI) has sparked intense debate about its impact on labor markets. AI adoption is a double-edged sword, fueling both concerns about job displacement and optimism about productivity gains. The actual effects on employment, wages, and workforce dynamics are complex and evolving. As a global leader in AI corporate adoption, investment, and research, the US is showing early signs of labor market shifts. Employment is growing at a slower pace in industries where AI usage has ramped up, especially where job displacement risk is higher in technology, finance, and professional roles.
Canadian AI Adoption and Labor Market Trends
Canadian AI adoption lags behind the US, with estimates suggesting that up to 60-80% of US companies use AI in some capacity, compared to lower rates in Canada. Despite this, Canada ranks in the top 15 globally in terms of AI adoption. Industry AI use and employment trends are more pronounced in the US, with a negative correlation between AI adoption rates and employment outcomes in industries such as information and culture, professional/scientific/technical services, finance and insurance, real estate, and healthcare. In contrast, Canada’s labor market has shown more resilience, with employment growth in AI-exposed sectors remaining robust.
AI Adoption vs AI Exposure
The terms AI adoption and AI exposure are related, with the latter being a broader term for its influence across the labor market. AI exposure qualifiers from Statistics Canada classify occupations and industries based on their exposure to AI and the degree to which it complements work functions. Employment in highly AI-exposed sectors with low-complementarity, where AI is likely to replace jobs, has fared better in Canada than in the US since late 2022. In contrast, AI-exposed occupations that are highly complementary with AI, such as engineering, physical and life sciences professionals, and professional occupations in education, law, and nursing, have seen robust employment growth in both the US and Canada.
Canada’s Labor Markets and the Business Cycle
Canada’s labor market has cooled over the past couple of years, reflecting a normalization in labor demand following the pandemic recovery. The unemployment rate has risen by roughly 1.5 percentage points, driven by reduced hiring activity and normalizing job vacancies. While AI may be influencing Canadian productivity, the relationship is tenuous, and cyclical factors are the primary drivers of current trends. However, AI presents one of the more substantial levers to shrink the productivity gap with other G7 countries.
Uncovering AI Wage Trends
The impact of AI on wages is nuanced and varies by sector, job type, and skill level. In the US, entry-level wages in highly AI-exposed roles are facing downward pressure, while young workers with AI skills can command higher wages. In Canada, wages for youth workers in AI-complementing industries have grown at a faster pace than those with lower AI-exposure over the last few years. However, overall economic conditions are still expected to be the primary governor of wage dynamics in Canada, with AI-specific wage effects likely to take longer to materialize.
Education Matters
Both the US and Canada are seeing higher unemployment pressures for recent graduates. In the US, AI is more directly correlated with declines in entry-level hiring and graduate employment in exposed sectors. In Canada, the unemployment rate for recent graduates has risen to 4-year highs, but this is more directly attributed to the rapid increases in the labor force as the student population ballooned. Instead, AI in Canada is reshaping graduate hiring through increasing demand for related skills, with Canadian universities adapting by emphasizing critical thinking and preparing students to work alongside AI.
Conclusion
AI doesn’t appear to be a dominant force in shaping Canada’s labor market, but its influence continues to grow. The US offers a glimpse of the future as the rate of adoption expands in Canada. AI is no different than other technological leaps of the past, offering both opportunities and challenges. Proactive adaptation will be key to ensuring that Canadian workers can thrive in the evolving labor market. By understanding the complex and evolving impact of AI on labor markets, policymakers, educators, and businesses can work together to create a more transformative and less destructive transition.
