How Taxing AI Could Save Jobs

AI-related job displacement is coming, though no one knows how fast it will proceed, how far it will go, and which sectors it will affect most. Much depends on the pace at which individual firms apply the technology to their operations.

Data from the US Census Bureau’s Business Trends and Outlook Survey indicate that, as of this past May, only 20 percent of firms with fewer than 20 employees were using artificial intelligence, compared with 37 percent of those with at least 250 employees. While larger companies were doing more with the technology, even 37 percent seems scant considering the survey’s low threshold for answering in the affirmative (whether AI is used “in any business function”).

For now, adoption is impeded by the difficulty of integrating already astonishing AI capabilities into existing workflows in a way that will allow companies to reap the benefits fully. At a minimum, successful integration requires models that are not only trained on existing data but also adaptive to new data generated through everyday use.

Another factor inhibiting adoption is uncertainty about cost. Many large companies are still running pilots and postponing hiring or firing decisions as they await more clarity. Eventually, however, competitive pressures will force them to adopt the technology more fully.

The outlook for jobs is not entirely pessimistic. If companies continue producing their current slate of goods and services, AI adoption will have the effect that any new technology has. Yes, some jobs will be rendered redundant, but some jobs will be made more productive and exciting as AI removes drudgery and assists with tasks humans do less well. And new jobs will be created, such as AI engineers who supervise the technology’s implementation.

Moreover, if AI adoption occurs because of the productivity increases it brings—rather than because it costs less in taxes than human effort—firms’ ability to produce more for less will allow them to reduce prices and increase sales. This is the famous Jevons effect: the greater sales should also increase jobs.

Yet another reason for optimism is that AI may help create new businesses. Jill might hesitate to become an entrepreneur selling driftwood furniture pieces because she needs a web programmer and an accountant to start up. With AI performing both those roles, perhaps she can set up a sole proprietorship at significantly less cost. The number of startups rose significantly during the pandemic and has increased further in recent quarters. Could AI accelerate this trend?