Impact of AI on the Labor Market in an ageing society

Since the publication of seminal works such as "The Future of Employment: How susceptible are jobs to computerisation?" by Carl Benedikt Frey & Michael Osborne in 20131, and "The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies" by Erik Brynjolfsson and Andrew McAfee in 20142, there has been an ongoing discussion about the potential impacts of digital technologies, especially artificial intelligence (AI), on the labor market. This discourse has historical roots extending back about 200 years to the Industrial Revolution’s Machinery Question in England3, which initially focused on the mechanization of physical labor.

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Historically, discussions on automation largely concerned the replacement of manual labor with machines and robots. However, the contemporary debate has shifted towards the potential automation of cognitive tasks, sparking concerns about significant job losses among highly skilled workers. The discourse is sharply divided on whether job losses due to automation will be offset by the creation of new types of employment. Proponents cite historical transitions, such as the shift from agricultural to industrial and then to service economies, as evidence that new job categories will emerge. Critics argue that AI’s capability to perform cognitive tasks might not lead to a similar job transition as seen in the past4.

A less frequently discussed but vital aspect of the debate on AI’s impact on employment is the demographic challenge of aging populations in many developed countries. Current data do not yet provide a clear picture, but it is evident that many countries face a growing imbalance between working-age individuals and retirees, which exacerbates issues related to healthcare costs, elder care, and pension funding5. The demographic trends suggest an increasing difficulty in maintaining a stable economy as the ratio of retirees to working-age persons increases.

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Furthermore, the decline in workforce numbers is not likely to be adequately compensated by immigration. Political climates in many countries are increasingly resistant to high levels of immigration, which also poses issues like brain drain. In countries like Germany, regular increases in state pension payouts are anticipated, which may lead to inflationary spirals as workers and retirees compete for shares of a potentially stagnant economic output.

The discussion about AI's impact on the labor market should, therefore, not only focus on labor demand (i.e., whether AI leads to unemployment) but also consider the shrinking labor supply. AI has the potential to counteract this decline by increasing the productivity of the remaining workforce through automation, which might be particularly beneficial in sectors like healthcare and care for the elderly where demand is growing dramatically in face of a shrinking labor supply.

The ongoing discourse on the impact of AI and digital technologies on the labor market is complex and multifaceted. While historical precedents suggest potential for new job creation, the unique capabilities of AI in automating cognitive tasks create uncertainties that were not present in previous technological shifts. Additionally, demographic challenges such as aging populations add another layer of complexity to predictions about the future labor market. Effective adaptation may require leveraging AI not only to automate tasks but also to enhance productivity in the face of a declining workforce, especially in critical sectors like healthcare. This nuanced perspective is essential for policymakers and business leaders as they navigate the future of employment in an increasingly automated and aged society.

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