Key Takeaways:
- AI is poised to transform the global economy, with potential impacts on the workforce, productivity, and economic growth.
- The adoption of AI is expected to be slower than the media often suggests, with an initial period of experimentation followed by organizational change and complementary innovation and investment.
- The impact of AI on the unemployment rate is uncertain, but it is expected to take 20 years or more to have a significant effect.
- AI has the potential to increase productivity and GDP, with projections suggesting a 1.5% increase by 2035, 3% by 2055, and 3.7% by 2075.
- Different countries and regions are taking different approaches to AI workforce policy, with some implementing retraining programs and apprenticeships to help workers adapt to the changing job market.
Introduction to AI’s Impact on the Economy
The advent of Artificial Intelligence (AI) is expected to have a profound impact on the global economy. While studies suggest that AI could bring about many positive, widespread benefits, predicting its exact impacts is challenging. As adoption increases, new questions arise about how AI will impact the workforce, how productive an AI-enabled workforce can be, and what impact increased productivity will have on the economy. Martin Baily, a senior fellow emeritus at the Brookings Institution and a former chairman of the Council of Economic Advisers, has written extensively on productivity and AI, and has weighed in on some of these questions.
The Impact of AI on Jobs
Technology has always reshaped jobs over time, and AI is no exception. Computers and the internet have reduced blue-collar roles while increasing jobs in professional fields, just as farm work dropped as production became more mechanized, creating new factory jobs. According to Deming, Ong, and Summers (2025), historically, there have been huge structural changes in the U.S. labor market, but employment has remained strong as new jobs have replaced the ones that have been lost. Baily believes that the impact of AI on the unemployment rate will take 20 years or more, and that the labor market could be impacted in other ways, such as changes in the types of jobs available and the skills required for those jobs.
The Timeline for Widespread Adoption of AI
Baily notes that the development of AI is happening at a rapid pace, with significant improvements in algorithms and massive investment in computing infrastructure. However, the pace of AI diffusion and productive use will be slower than the media often suggests. History tells us that previous technological changes took many years before there was a significant impact on productivity. For example, the development of the electric motor and the dynamo (electricity generator) took decades for widespread adoption and required businesses to redesign their business processes. Baily expects an initial period of experimentation followed by organizational change and complementary innovation and investment.
The Impact of AI on Productivity
AI has the potential to increase productivity and GDP, with projections suggesting a 1.5% increase by 2035, 3% by 2055, and 3.7% by 2075. Baily believes that AI looks like both the dynamo (a general-purpose technology) and the microscope (called "an invention in the method of invention"), which suggests its long-term impact on productivity could be substantial. However, there is a huge range of estimates of the likely impact of AI on productivity, and it is difficult to predict exactly how AI will affect the economy.
The Role of Businesses and Governments in Managing the Transition
Different countries and regions are taking vastly different approaches to AI workforce policy, with some implementing retraining programs and apprenticeships to help workers adapt to the changing job market. Baily notes that the northern European economies and Germany have apprenticeship programs to provide workplace skills, and they have retraining programs for workers that lose jobs. However, if AI really causes a major disruption to existing employment patterns, Europe will have difficulty responding, and governments may decide to slow down the adoption of AI and pay a productivity penalty. Businesses also have a role to play in managing the transition, by investing in retraining programs and adapting to the changing needs of the workforce.
The Potential Emergence of Artificial General Intelligence
The potential emergence of artificial general intelligence (AGI) could substantially alter the way we envision AI’s impact on productivity. Baily notes that a constant flow of innovation is required just to keep our current productivity growth trend of 1.5% a year going, and AI could just get folded into the current trend. However, AGI could also have a more profound impact on the economy, by enhancing the skills of not only the highly educated but also the workers who left school early. An important national priority is to direct government research dollars toward innovations in AI that help the workforce.
Conclusion
In conclusion, AI is poised to have a significant impact on the global economy, with potential effects on the workforce, productivity, and economic growth. While the exact impacts are uncertain, it is clear that AI will require significant changes in the way we work and the skills we need to succeed. By understanding the potential impacts of AI and taking steps to manage the transition, we can help ensure that the benefits of AI are shared by all, and that the economy continues to grow and prosper.
