It may not feel like it for energy company HR departments busy trying to recruit sought-after specialists to advance their burgeoning AI capabilities, but deploying AI is likely to lead to a reduction in labour requirements across global economies and a massive transition in the jobs market, at least initially.
A new paper from the International Monetary Fund (IMF) says that shift will come with potentially significant social and economic consequences – and could require a transformation in corporate taxation.
Dryly named “Broadening the Gains from Generative AI: The Role of Fiscal Policies”, the paper in fact outlines some acute challenges for governments, companies and the rest of society.
The authors say that, while AI could eventually boost overall employment and wages, it could put large swaths of the labour force out of work for extended periods.
“The sheer scale and speed of the transformation pose risks to labour markets. While automation and robots have already displaced low- and middle-skill jobs involving routine tasks, gen AI’s capabilities extend to more intelligent automation, potentially amplifying job losses in cognitive occupations,” the report says.
That means labour’s income share in overall national income may further decline, exacerbating income and wealth inequality. “Dominant firms in increasingly concentrated markets could reinforce their market power and enjoy monopoly rents,” the authors say.
The report argues that fiscal policy should have a major role to play in supporting a more equal distribution of gains and opportunities from generative AI, but that this will require “significant upgrades to social protection and tax systems around the world”.
The IMF says lessons can be learned from recent economic upheavals such as the 2008 financial crisis, when some industries slimmed down their workforces, compensating via advances in automation – that could be repeated with the introduction of AI.
“Similarly, there are risks around financial stability, so given the IMF mandate to pay close attention to developments on macro- and on financial-stability issues, we're paying close attention to AI,” Gita Gopinath the IMF’s First Deputy Managing Director said in a video interview accompanying a blog on the paper.
Cushioning the impact
IMF modelling suggests more generous unemployment insurance could cushion the negative impact of AI on workers, allowing displaced workers to find jobs that better match their skills. More sector-based training, apprenticeships, and upskilling and reskilling programs may also be needed to prepare workers for AI-related jobs. For those unable to reskill immediately and facing long-term unemployment, far-reaching social-assistance programs will be needed.
Governments will be responsible for driving much of this change, but there will be ramifications for companies too, and not just in helping to reskill their own workforces – there may well be a financial cost.
Ensuring what might be termed a just transition for the introduction of AI is going to require a lot of money, which is why the IMF wants to talk about fiscal policy.
The paper notes that some developed countries have increased corporate tax breaks on software and computer hardware in an effort to drive innovation, but that these incentives tended to encourage companies to replace workers through automation. The authors say corporate tax systems that inefficiently favour rapid displacement of human jobs should be reconsidered, given the risk they could magnify the “dislocations from AI”.
They argue against a specific tax on AI, saying that this risked holding back investment and innovation, stifling productivity gains, that it would be hard to put into practice and that it could do more harm than good if poorly targeted.
However, they say a tax or levy related to carbon emissions generated by the extra energy required to drive AI systems could work.
“Given the large amount of energy consumed by AI servers, taxing the associated carbon emissions is a good way to reflect the external environmental costs in the price of the technology,” according to the report.
Tax implications
More generally, they argue for corporate income taxes to be strengthened, noting that, since the 1980s, the tax burden on capital income has steadily declined in advanced economies while the burden on labour income has increased – a situation unfavourable to workers in an era of higher income inequality and greater concentration of wealth that innovative AI is unlikely to bring to an end quickly.
A global minimum tax agreed by over 140 countries that sets a minimum 15% effective tax rate on multinational companies is seen as a step in the right direction. Other measures could include a supplemental tax on excess profits, higher taxes on capital gains, and improved enforcement, the authors say.
(Photo: Kaitlyn Baker/Unsplash)
