Fed governor Barr: 3 ways AI could shake up the labor market

What they're saying: In a speech yesterday, Federal Reserve governor Michael Barr laid out three possible AI scenarios, a notable outline of how a top Fed official anticipates the technology could ultimately shape the labor market.

1. Gradually. The first scenario is perhaps the least economically painful. AI uptake is widespread but gradual enough that "large and widespread joblessness is avoided," consistent with earlier tech advances like the internet and personal computers.

• "Unemployment might rise somewhat in the short term due to skill mismatch, but education and training choices adjust over time, and many workers successfully retrain and retain their jobs or find new ones," Barr said.
• Barr noted that research seems most consistent with this scenario, though it doesn't mean that "more extreme scenarios" can't play out in the years ahead.

2. Rapidly. AI capabilities swarm the economy far more quickly than the labor market can adjust, leaving "a large share of the population ... essentially unemployable."

• "AI-centric start-ups with radically new business models displace firms that are unable to adapt, and layoffs soar, leading to widespread unemployment in the short run and declines in labor force participation over time," Barr said.
• This would be the realization of the gloomy AI economic consequences that Anthropic CEO Dario Amodei warned Axios about last year. Barr issued his own warning about how the government and private sector would need to be prepared to respond.
• "With a vastly more productive economy, but much less demand for labor, society would have to rethink the social safety net to ensure that the gains from unprecedented economic growth are shared rather than concentrated among a small group of capital holders and AI superstars," Barr said.

3. To exhaustion. In Barr's final scenario, shortages — of electricity supply, of financing capital, etc. — lead to a stalling out of AI capabilities. "Timing mismatches in the investment and business integration process could lead to reduced realization of the potential of AI," he said.

• AI could still be widely adopted in this case, but the tools are "ubiquitous, even indispensable, but not necessarily revolutionary by themselves."

The big picture: A new survey — conducted by economic researchers at the Bank of England, the Atlanta Fed and universities in Germany and Australia — shows broad adoption of AI among international companies, but so far limited economic effects.

• More than 90% of the 6,000 business managers in the four countries reported no AI-related employment impacts, while a similar share reported no changes to labor productivity, according to research published by the National Bureau of Economic Research.
• But forward-looking surveys anticipate more impact over the next three years, with firms predicting that AI adoption will boost productivity by 1.4% on average, and reduce employment by almost 1%.

The intrigue: San Francisco Fed president Mary Daly told Axios San Francisco's Shawna Chen that businesses are in a wait-and-see hiring mode as they assess AI capabilities.

• "Right now, they're in this interrogation phase of, 'What is AI going to help us do and not do? And once we figure that out, then we can think about hiring," Daly said.

The bottom line: "The extent of disruption will depend in part on whether society undertakes the investments needed in new job creation, worker training, connecting workers to new jobs, and other efforts to mitigate adverse labor market effects," Barr said.