Navigating AI's Impact on Labor: Challenges, Scenarios, and Policy Pathways

Tillman Schenk, Arturs Kanepajs, David Conrad

Abstract: The rapid development of Artificial Intelligence (AI) is set to transform labor markets, presenting both significant opportunities and challenges. However, there is considerable disagreement on precisely how AI will impact labor demand. This paper presents a structured framework to navigate this debate by categorizing potential outcomes along two key dimensions: AI's net task displacement effect and its aggregate productivity effect. Based on these dimensions, we identify four scenarios for AI's impact on labor demand, ranging from minimal disruption to transformative changes. To address these uncertainties, we propose a two-pronged policy approach: steering policies to guide technological development toward favorable labor market outcomes, and adaptation policies to mitigate AI's adverse effects.