If productivity increases, or in other words, production capacity per hour increases, everyone should become richer. The idea is that higher productivity means more profits for firms, and that profits are shared by workers and managers through higher wages and more valuable businesses. But since the 1980s, productivity gains have gone almost exclusively to business owners and executives, leaving the average worker behind and wage and wealth inequality at all-time highs.
The advent of artificial intelligence promises greater productivity gains than any previous technology. If AI delivers results and its productivity gains remain unreachable for everyday workers, wage and rich-poor inequalities will likely widen further, with high rates of economic inequality already affecting the economy, labor, and labor. The burdens imposed on the market and the political community will increase further. environment. It doesn’t have to be this way, and it’s time to consider policies that allow everyone to share in the anticipated benefits of AI.
It is well known to economists that the gap between productivity growth and wage growth has widened over the past 40 years. I’m quoting figures from the Economic Policy Institute, but they’re pretty much the same no matter where you cut them. They show that between the end of World War II and the 1970s, productivity and wages for ordinary workers grew almost in tandem. But since then, productivity has grown nearly four times faster than wages for ordinary workers, and the difference has passed into the hands of shareholders and the highest-paid workers.
The result is clear. The wage ratio, the gap between the highest paid workers and the lowest paid workers, has risen sharply in recent decades. Best known among them is the CEO-to-employee salary ratio, which has risen from just 20-to-1 in 1965 to a staggering 399-to-1 in 2021. The US Gini index, which indicates the degree of income inequality, has been on a sharp upward trend since the 1980s, and is currently the highest level among developed countries. Wealth inequality also shows that the divide between the wealthiest Americans and the rest of the world is widening.
The concept of two Americas split along economic lines is fast becoming a reality. While private schools in the United States give the lucky few a world-class education and the runway to elite universities, public schools struggle to teach basic reading if they can find teachers. there is Wealthy Americans are turning to concierge medicine, which operates primarily outside the US’s impregnable health care system, while others struggle to find a doctor, even if they have the money. . While commercial planes carry and move wealthy travelers, ordinary Americans, assuming they have enough income to travel, are being crammed into increasingly tight commercial airlines. The wealthiest Americans have less and less need and opportunity to meet less fortunate compatriots.
There are good reasons to worry that AI will deepen these chasms. The last two productivity booms, driven by personal computers and the Internet, have shook markets across industries, including Apple Inc. in personal computing and smartphones, Alphabet Inc. in web search, Microsoft Corp. in business software, and Meta Platforms Inc. Contributed to the concentration of shares. Amazon.com Inc. for social media, online retail and cloud computing. Decreased competition allowed the winners to be bigger, more profitable, and more powerful, allowing owners and executives to gain wealth while brandishing workers.
These companies have a big lead in the AI race. This time around, AI threatens to replace highly paid workers, from engineers at big tech companies to professionals such as lawyers, consultants and wealth managers. “It will be a big change from the last 40 years when blue-collar workers were lost and white-collar workers benefited from technological advances,” AI researcher Anton Korinek told Bloomberg News. “It’s the opposite, white-collar workers are more likely to be automated.”
If this is true, the number of workers excluded from technology-driven productivity growth will continue to grow, perhaps to a greater extent than in the past. Korinek co-authored a new Brookings Institution paper estimating that AI could increase productivity by as much as 2.3% to 3.3% annually over the next 20 years, compared to the Congressional Budget Office’s annual rate of 1.5%. 100% are achieving actual productivity, far exceeding expectations. Since 1980, it has shown an annual growth rate of 1.2%. Imagine his triple increase in productivity shared by even fewer Americans. It would make today’s inequality look like a socialist utopia.
Some argue that the degree of inequality doesn’t matter if everyone is doing well. But that is far from reality. Because by all accounts, tens of millions of full-time American workers don’t earn a living wage. So it’s not just that economic inequality is high. Even before the mass adoption of AI, a staggering number of workers struggled to survive and had little hope of building wealth.
The good news is that there are policy interventions that could help narrow the wage and wealth gap. The U.S. could adopt a system of co-determination, much like Germany has for decades, where workers would be represented on corporate boards to ensure they had a say in wages. Financial regulators can require companies to disclose compensation data so they can measure and address the impact of AI on wages. The data will help policy makers devise targeted incentives for companies to pay workers a living wage. The U.S. could invest in AI and set up a sovereign wealth fund that would use some of the profits to help workers displaced by bots.
AI could usher in the next productivity boom. But if the gains from technology over the past 40 years are not shared more broadly, economic inequality, along with all the harm that comes with it, will deepen.
