Economists are concerned about the potential for increasing inequality during a period of massive economic reform that challenges what it means to be human.

In the year On November 30, 2022, OpenAI launched AI chatbot ChatGTP, making the latest generation of AI technology widely available.

In the months since, we’ve seen Italy ban ChatGTP over privacy concerns, tech elites call for a pause in AI system development, and even prominent researchers say we should be ready to launch airstrikes on rogue AI-related databases.

The rapid spread of AI and its potential impact on human society and economy is now in sight.

What does AI mean for productivity and economic growth? Will it usher in an era of automated luxury for all or will it simply reinforce existing inequalities? And what is the role of humanity?

Economists have been studying these questions for years. My colleague Yixiao Zhou and I analyzed their results in 2021, and we are still far from definitive answers.

The big economic picture

For the past half century or so, workers around the world have been earning a small fraction of their countries’ total income.

At the same time, productivity growth – how much output can be created with inputs such as labor and materials – has slowed. This period has seen great advances in the innovation and implementation of information technologies and automation.

Better technology is thought to increase productivity. The failure of the computer revolution to produce these benefits is a puzzle economists call the Solow Paradox.

Will AI save global productivity from long decline? If so, who reaps the benefits? Many people are curious about these questions.

While consulting firms often paint AI as an economic panacea, policymakers are more concerned about job losses. Economists, perhaps unsurprisingly, take a more cautious view.

Radical change at a rapid pace

Perhaps the single biggest source of caution is the enormous uncertainty surrounding the future direction of AI technology.

Compared to previous technological leaps – such as trains, motorized transport and, more recently, the gradual integration of computers into all aspects of our lives – AI can spread rapidly. And it can do this with a very low capital investment.

Because the application of AI is mostly a revolution in software. Much of the infrastructure is in place, such as computing devices, networks, and cloud services. There’s no need for the slow process of building a physical rail or broadband network – you can use ChatGPT and the increasingly popular similar software from your phone.

Also, AI is relatively cheap to use, which greatly reduces the barriers to entry. This connects to another big uncertainty surrounding AI: the scope and domain of its effects.

AI looks set to dramatically change the way we do things, from education and privacy to the structure of global business. AI can change not only the diversity of the economy, but its broader structure.

Adequately modeling such a complex and radical change would be extremely challenging, and no one has yet done so. But without such a model, economists cannot make clear statements about the impact on the economy as a whole.

More inequality, weaker institutions

Although economists have different opinions on the impact of AI, there is general agreement among economic studies that AI will increase inequality.

One example of this would be to shift the benefits from labor to capital and weaken the institutions of labor on the move. At the same time, it can weaken the redistributive capacity of the government by reducing the tax base.

Most empirical studies have found that AI technology will not reduce overall employment. However, it can reduce the relative amount of income going to low-skilled labor, increasing inequality in society.

Moreover, AI-induced productivity growth will result in employment redistribution and trade restructuring that will further increase inequality within and between countries.

Consequently, limiting the speed of AI technology will slow down societal and economic restructuring. This provides a long window for adjustment between relative losers and beneficiaries.

With the advancement of robotics and AI, there is an opportunity for governments to mitigate income inequality and negative impacts through policies that seek to reduce income inequality and inequality of opportunity.

What is left for man?

The famous economist Jeffrey Sachs once said.

In the era of AI, the only thing people can do is to be human, because this is something that robots or AI cannot do.

But what exactly does it mean? At least economically?

In the traditional economic model, people are often synonymous with “labor”, and at the same time they are the facilitating agent. If machines can’t just do labor, but also make decisions and generate ideas, what’s left for humans?

The rise of AI challenges economists to develop more complex human representations and “economic agents” that inhabit their models.

As the American economists David Parks and Michael Wellman note, the world of AI agents may look more like an economic theory than the world of humans. Compared to humans, AIs are “better at adhering to idealistic assumptions of reason, interacting with novel rules and incentive systems than those designed for humans.”

Importantly, having a better concept of what a “human” is in economics will also help us think about what new features AI will bring to the economy.

Will AI bring us a fundamentally new production technology, or will it complement existing production technologies? Is AI simply a substitute for labor or human capital, or is it an independent economic agent in the economic system?

Answering these questions is crucial for economists — and for understanding how the world will change in the coming years.

• Yingying Lu, Research Associate, Center for Applied Macroeconomic Analysis, Crawford School of Public Policy and Economic Modelling, CSIRO

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