AI Will Transform the Global Economy. Let’s Make Sure It Benefits Humanity.

We stand on the cusp of a technological revolution that promises to boost productivity, spur global growth, and increase incomes worldwide. However, it also poses significant risks, such as job displacement and widening inequality.

The rapid progression of artificial intelligence (AI) has garnered global attention, eliciting both enthusiasm and concern. The potential impact of AI on the global economy is complex and multifaceted. While its net effect remains uncertain, it is evident that we must formulate policies to harness AI’s immense potential for the greater good of humanity.

Reshaping the Nature of Work

Recent analysis by IMF staff delves into AI’s potential impact on the global labor market. While many studies highlight the possibility of job replacement by AI, it is also clear that AI will complement many human roles. The IMF’s analysis considers both of these aspects.

The results are striking: nearly 40 percent of global employment is susceptible to AI. Traditionally, automation and information technology have affected routine tasks, but AI’s unique capability to impact high-skilled jobs differentiates it. Consequently, advanced economies face more significant risks and opportunities from AI compared to emerging markets and developing countries.

In advanced economies, approximately 60 percent of jobs could be influenced by AI. Of these, half might benefit from AI integration, leading to enhanced productivity. However, for the other half, AI may perform tasks currently done by humans, potentially reducing labor demand, lowering wages, and decreasing hiring. In extreme cases, some jobs may become obsolete.

Conversely, AI exposure in emerging markets and low-income countries is anticipated to be 40 percent and 26 percent, respectively. This suggests that these regions will experience fewer immediate disruptions from AI. However, many of these countries lack the infrastructure or skilled workforce to fully leverage AI’s benefits, which could exacerbate inequality over time.

AI’s influence could also intensify income and wealth inequality within countries. Workers capable of utilizing AI may see increased productivity and wages, while those who cannot might fall behind. Research indicates that AI can help less experienced workers enhance their productivity quickly. Younger workers might find it easier to seize opportunities, whereas older workers could struggle to adapt.

The effect on labor income will largely depend on how AI complements high-income workers. If AI significantly aids higher-income workers, their labor income may rise disproportionately. Additionally, firms that adopt AI could see productivity gains that boost capital returns, benefiting high earners and potentially exacerbating inequality.

In most scenarios, AI is likely to worsen overall inequality, a trend that policymakers must address to prevent the technology from exacerbating social tensions. Establishing comprehensive social safety nets and retraining programs for vulnerable workers is crucial for a more inclusive AI transition, protecting livelihoods and reducing inequality.

An Inclusive AI-Driven World

AI integration in businesses worldwide is accelerating, necessitating prompt action from policymakers.

To guide policy development, the IMF has created an AI Preparedness Index, measuring readiness in areas such as digital infrastructure, human capital and labor market policies, innovation and economic integration, and regulation and ethics.

The human capital and labor market policies component assesses factors like years of schooling, job market mobility, and social safety net coverage. The regulation and ethics component evaluates the adaptability of a country’s legal framework to digital business models and the presence of strong governance for effective enforcement.

IMF staff used the index to assess the readiness of 125 countries. The findings indicate that wealthier economies, including advanced and some emerging market economies, are generally better prepared for AI adoption than low-income countries, though significant variation exists across nations. Singapore, the United States, and Denmark scored the highest on the index, excelling in all tracked categories.

Guided by insights from the AI Preparedness Index, advanced economies should prioritize AI innovation and integration while developing robust regulatory frameworks to cultivate a safe and responsible AI environment, maintaining public trust. Emerging market and developing economies should focus on building strong foundations through investments in digital infrastructure and developing a digitally competent workforce.

The AI era is upon us, and it is within our power to ensure it brings prosperity for all. Through thoughtful policy-making and strategic investments, we can navigate this technological transformation to benefit humanity as a whole.