AI technology may significantly impact job markets during economic downturns, causing heightened productivity gains and job losses. Historical patterns show that manufacturing employment fell drastically, particularly during recessions, as companies sought to replace labor with technology. This trend could intensify if AI replaces many white-collar jobs, with impacts most severe during periods of economic weakness. Past recessions have experienced prolonged jobless recoveries, indicating that even as economic output rebounds, unemployment may stay elevated due to automation in the workplace.
If firms face a costly adaptation process for automation to replace workers, then the cost of adjustment comes down during recessions when the opportunity cost of not producing is relatively low.
We think that during the course of the next recession the speed and the breadth of the adoption of the AI tools and applications in the workplace might induce large scale displacement for occupations that consist of primarily non-routine cognitive tasks.
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