A Macroeconomic Analysis of the Impact of Artificial Intelligence on Economic Inequality, Workforce Composition, and Economic Growth

Abstract

Artificial Intelligence's (AI) pervasiveness in the world has caused fear regarding its impact and the future of economies. The AI market size was estimated at about $196.6 billion in 2023. AI has the potential to be a new factor of production. Some believe AI is simply the next phase in the automation process, which has continued for the last 150 years, whereas others believe it could lead to "creative destruction" in the economy. While it could be either, it could also be a combination of both-automation of some jobs while creating new ones that require different skill sets. Nevertheless, it is imperative to ensure a smooth transition of the economy and the workforce into this new phase. This paper analyzes the impact of AI adoption on economic inequality , workforce composition, and output and suggests ways for governments to prepare for potential challenges. It reveals disparities such as those between developing and developed countries, between firms in different industries (telecom & high-tech versus health-care), and between individuals. This paper suggests that nations should secure job growth with higher productivity. The impact of AI is multifaceted, offering opportunities for economic growth but also raising concerns about inequality and workforce composition. Governments must proactively take measures to benefit from AI while trying to minimize its negative externalities.