Artificial intelligence (AI) will undoubtedly shape how we work in the future. It has the potential to improve workers' lives by, for example, reducing the relative amount of difficult or boring work that needs to be done, and facilitating labour market access for the elderly and disabled, and people who wish to work flexibly or remotely. It is also clear that the spread of AI will destroy some jobs, transform others, and hopefully create new ones, but the jury is still out on the net effect that it will have on job numbers. Estimates range from an overall negligible impact to a loss of 47% or even 54% of jobs in gross terms in the US and Europe.
Previous episodes of rapid technological progress suggest that in the long term workers will reallocate between tasks, companies or sectors, and that the “augmentation effect” – humans working on tasks alongside machines – will prevail. But this reallocation will not happen immediately, and the disruption caused by AI is bound to put strain on the labour market and as a result also on public finances.
AI's impact on public revenues
Displacement of workers as a result of AI is very likely to put significant pressure on public revenues, if the current system based on personal income tax and social contributions does not adapt. This impact on tax revenues may be heightened by the shift from employment based on formal open-ended contracts, with employers generally responsible for collecting tax revenues, to freelance/gig work, which is more complex to tax. It is also likely to require increased spending on unemployment benefits, active labour market policies, and education.
There is an emerging consensus that medium-skilled workers are likely to lose out disproportionately, in comparison to low- and high-skilled workers, as their tasks lend themselves more easily to substitution by AI machines (a phenomenon described as the polarisation of the labour market). In the past, technology could be substituted for human labour only in routine tasks, but now algorithms make it possible to automate work that requires cognitive skills. At present, this predominantly affects medium-skilled workers. For example, it is easier for a computer to replace a bank teller than a cleaner. This risks increasing income inequality, which is already growing, and reduced labour income could make it even more difficult for countries to redistribute wealth through labour taxation, exacerbating the problem further. The possibility of imposing more tax on capital income or stock could be explored to ensure both sufficient revenues and fair burden sharing. These considerations are reflected in the ongoing discussion on "taxing robots".
The need to increase education spending
The shift to robotised work is creating challenges not only for taxation, but also for the education of the labour force. Ensuring equal access to good-quality education should be another way to mitigate the inequality-inducing effects of AI. It is essential to make sure that there are enough experts to develop and implement AI, but it is also very important to equip people with at least basic digital skills and the ability to think critically and creatively, so that they can make the most of the opportunities offered. Given the increased importance of education levels for workers to succeed in the era of AI and employers’ potential reluctance to enhance the skills of employees who may be more mobile, the state may have to pick up the tab. It would need to upgrade the skills of existing workers and also adjust educational systems to promote the development and uptake of human-centric AI.
Despite continuing uncertainty about the exact impact AI will have on current economic systems, policy-makers should be ready to maximise the benefits that these new technologies bring but at the same time to mitigate their negative effects. In order to raise awareness of AI-related issues from an economic point of view, DG ECFIN recently organised an internal seminar where Mario Mariniello, the Digital Advisor to the European Political Strategy Centre, presented his paper on "The Age of Artificial Intelligence: Towards a European Strategy for Human-Centric Machines". This provided an opportunity for colleagues to discuss AI's impact on the labour market, public finances, productivity, and Europe's place in the AI race but also broader perspective issues such as an ethically-sound approach to AI.
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