SINGAPORE (April 8): Artificial intelligence is transforming every aspect of our lives, not least the economy. As a general-purpose technology, AI’s applications are potentially endless. While it can be used to automate tasks previously performed by people, it can also make human labour more productive, thereby increasing labour demand.

Unfortunately, the current trend in commercial AI development is towards more and more automation, with potentially disastrous consequences for society. To be sure, automation has been an engine of productivity growth since the beginning of the Industrial Revolution, when, starting in the late 18th century, weaving and spinning were mechanised. But the tide of automation does not automatically lift all boats. By replacing labour with machines in production tasks, automation reduces labour’s share of value added (and national income), contributes to inequality and may reduce employment and wages.

And yet most modern economies have experienced robust wage and employment growth since the Industrial Revolution. As automation has displaced workers in performing certain tasks, other technologies have emerged to restore labour’s central role in the production process by creating new tasks in which humans have a comparative advantage. These technologies have not only contributed to productivity growth, but have also increased employment and wages, generating a more equitable distribution of resources in the process.

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