AI and Jobs: The Role of Demand

Innovation and Economic Growth and Artificial Intelligence

Article Snapshot


James Bessen


in The Economics of Artificial Intelligence: An Agenda, Ajay K. Agrawal, Joshua Gans, and Avi Goldfarb, eds., University of Chicago Press, 2019


In recent decades, technology increased productivity but reduced the number of manufacturing jobs. Historically, at times, jobs are gained when productivity improves. If automation increases the demand for a product, automation will increase the number of available jobs in that sector.

Policy Relevance

Artificial intelligence (AI) will eliminate some jobs. If demand for products made by automated processes increases, employment might rise.

Main Points

  • In the textile industry, the steel industry, and in automotive manufacturing, technology and automation have increased productivity; while productivity increased, the number of those employed in those sectors also rose.
  • Automation reduces the price of products and tends to improve the product’s quality and the speed of delivery; when these factors increase the demand for a product, overall employment in that sector will increase.
  • During the 19th century, labor productivity in agriculture grew slowly, and the share of those employed in the agricultural sector fell; productivity in manufacturing grew far more rapidly, but employment rose as demand for manufactured products grew.
  • As consumer incomes grow, demand for simple goods such as food becomes satisfied, but their demand for luxury goods increases.
    • When most consumers cannot afford a good, the elasticity of demand is high, that is, demand changes in response to changes in price.
    • When most consumers can already afford a product, elasticity of demand will not change much even when prices change.
  • The effect of technology on employment depends on whether reductions in the price of products increase demand.
  • The pace of change does not alter the effect of technology on jobs.
  • The effect of AI on jobs depends on whether the AI entirely replaces a human worker, or merely augments the human worker; in the past, technology has usually augmented human workers rather than replacing them.
  • AI might create demand for new services.
  • AI will eliminate some jobs, in some places, for some sectors.


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