Artificial intelligence (AI)-related job displacement is coming, though no one knows how fast it will proceed, how far it will go and which sectors it will affect most. Much depends on the pace at which individual firms apply the technology to their operations.
A recent US Census Bureau Business Trends and Outlook Survey indicates that only 20% of firms with fewer than 20 employees currently use AI, compared to 37% of businesses with at least 250 employees. While larger firms are doing more, 37% is still quite meagre considering the survey’s low threshold for answering in the affirmative (whether AI is used “in any business function”).
For now, adoption is being impeded by the difficulty of integrating already astonishing AI capabilities into existing workflows in a way that will allow companies to reap the benefits fully. Doing so requires models that are not only trained on existing data but also adaptive to new data generated through everyday use.
Another factor inhibiting adoption is uncertainty over cost. Many large firms are running pilots and postponing hiring or firing decisions as they await more clarity. Eventually, competitive pressures will force them to adopt the technology more fully.
The outlook for jobs is not entirely pessimistic. If companies continue producing the goods and services they currently produce, AI adoption will have the effect that any new technology has. Yes, some jobs will be rendered redundant (implying displacement); but some jobs will be made more productive and exciting as AI removes drudgery and assists with tasks humans do less well, and new jobs will be created.
Moreover, if AI adoption occurs because of the productivity increases it brings (rather than because it costs less in taxes than human effort), firms’ ability to produce more for less will allow them to reduce prices and increase sales. This is the famous Jevons effect, which should also increase jobs.
Yet another reason for optimism is that AI may help create new businesses. Jill might hesitate to become an entrepreneur selling driftwood furniture because she also needs a web programmer and an accountant to start up. With AI performing both those roles, perhaps she can set up a sole proprietorship at significantly less cost.
The number of startups already increased significantly during the pandemic and has increased further in recent quarters.
As economist David Autor points out, AI can also equip moderately skilled workers with higher-order skills, as in the case of a nurse practitioner who can diagnose and treat many more illnesses with the help of medical AI. Given the enormous demand for medical services worldwide and also services more generally, there is plenty of room for further job creation.
But even if the ‘jobocalypse’ is less severe than many feared, minimizing its effects is still necessary to maintain social solidarity, and corporations will need to be enlisted in the effort. After all, it is they who will have the best sense of the new opportunities that their employees can re-train for.
The first task for any government, then, is to identify and address all the ways the tax system biases corporations against human labour. For example, a US firm contributes social-security payments for every worker, but not for AI.
In a world where governments are already cash-strapped, one way to level the playing field is to levy a tax on the AI tokens a firm uses. The precise tax rate will need to be calculated carefully to avoid impeding AI deployment. While payments to domestic AI providers can be tracked easily, foreign providers would also have to be brought into the net; but this is not an insoluble problem.
Recognizing that the first round of AI displacement will not be the last, it will be even more valuable to get firms to re-train workers periodically, and to retain workers whenever possible.
Perhaps governments could consider a tax credit for additional training provided to workers, with one-third of the value usable each year a worker retains employment. If the government wants to apply such a policy to AI adopters, it could even require the credit to be used only to offset the token tax.
More important than tax incentives, however, will be firms’ acknowledgement that they are fully engaged in helping their employees cope with an uncertain future.
As employment uncertainty grows, even the best and brightest may worry about accepting offers from an employer who could fire them whenever it finds that AI can do as well or better.
Employers who promise to support their employees may enjoy an additional bonus; as their reputation grows, they will have a wider pool of high-quality candidates to choose from.
The trend here is encouraging. In ongoing work, Luigi Zingales, Pietro Ramella and I find that the share of US Fortune 150 CEOs declaring in letters to shareholders that they care about employee development has increased steadily, from around 20% in 2008 to 44% in 2023.
We cannot rule out the possibility that this is all cheap talk. One hopes not. The more that corporations engage in what may be the defining business challenge of our time—i.e., providing good jobs for humans—the more we can all look forward to a future of plenty. ©2026/Project Syndicate
The author is a professor of finance at the University of Chicago Booth School of Business, former governor of RBI and co-author of ‘Breaking the Mold: India’s Untraveled Path to Prosperity’