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  • Writer's pictureNoreen Hynes

AI and Its Impact on Jobs, Wealth, and Income Distribution




By Noreen Hynes, B.Comm, FCA, Author


I am writing this blog because I believe people should be thinking about and talking about the potential negative impact of AI on jobs,  wealth, and income inequality, as well as the need for good governance around its use.  We are already seeing the effect of large companies letting go of significant numbers of employees and freezing recruitment.  It is not something Governments alone should consider; voters need to talk about it and decide what policies they want from their politicians. In the fifties and sixties, a teacher or a manager could afford to buy a home and rear their family in comfortable circumstances. In 2024, they could not afford a house even on two salaries. Many things have changed in the meantime, but the cost of housing has been a big reason many working people cannot afford a home. Add to that scenario the introduction of AI and the negative impact on jobs, and you are building a big problem into the future.

AI  impacts our daily lives and our future. In the past two years, we've witnessed a significant surge in the integration of AI across various functions in large companies. This has led to a boost in productivity, increased profits, and higher returns for shareholders. Undoubtedly, this is a positive development for investors and the economies where this transformation occurs. However, the long-term impact of this shift on job losses remains uncertain, with many experts anticipating a significant adverse effect. This ambiguity underscores the urgency and importance of further research and understanding of the potential impact of AI on jobs and wealth distribution.

Suppose you take a manufacturing company with a semi-automated environment and transform that business into a fully automated one with robotics. In that case, it is easy to see the impact on jobs and profits. The shareholders invest in robotics that work around the clock without rest. The shareholders reap a higher return because they have no weekly wage bill, but they have maintenance costs and depreciation, which is only a fraction of the labor costs over time. Any additional profits they make from this investment go to the shareholders, and I refer to those additional profits here as super profits. These profits are above and beyond what they could earn using manual labor and after accounting for the cost of their capital investment.

One cannot blame entrepreneurs who take financial risks to use the best technologies to advance their businesses, but every decision has consequences.

 However, if you take a service organization such as, for example, the big accountancy and consulting organizations, then it is a bit more challenging to predict the impact on jobs and profits. Still, significant job losses are also likely. For example, if you have 50 employees preparing tax computations for clients, almost all of this can now be automated. Any computational work can be automated. Research can be done on AI and verified with sources at lightning speed so that fewer people will be needed in this work area. Copywriting jobs have been seriously impacted, as have marketing.

There is little doubt that there will be significant changes in employment over the next six to seven years, and we should prepare for those changes, but there is no easy fix to this issue..

An IMF report titled Artificial Intelligence and the Future of Work concluded that  "Almost 40 percent of global employment is exposed to AI, with advanced economies at greater risk but also better poised to exploit AI benefits than emerging market and developing economies. In advanced economies, about 60 percent of jobs are exposed to AI, due to prevalence of cognitive-task-oriented jobs. A new measure of potential AI complementarity suggests that, of these, about half may be negatively affected by AI, while the rest could benefit from enhanced productivity through AI integration. AI will affect income and wealth inequality. Unlike previous waves of automation, which had the strongest effect on middle-skilled workers, AI displacement risks extend to higher-wage earners. However, potential AI complementarity is positively correlated with income. Hence, the effect on labor income inequality depends largely on the extent to which AI displaces or complements high-income workers. Model simulations suggest that, with high complementarity, higher-wage earners can expect a more-than-proportional increase in their labor income, increasing labor income inequality. This would amplify the increase in income and wealth inequality that results from enhanced capital returns that accrue to high earners. Countries' choices regarding the definition of AI property rights, as well as redistributive and other fiscal policies, will ultimately shape its impact on income and wealth distribution. "

Wealth inequality is already a big issue and could, if not gradually reversed with government policies, cause significant upheaval in society. We can all see its impact on homelessness and poverty levels, and if you add to that the effects of AI on job losses, we could be building a significant inequality in income levels as well as the distribution of wealth that is just not sustainable. We must talk about this train wreck before it results in societal upheaval. We cannot rely on private enterprises to fix the problem; that's like asking turkeys to vote for Christmas. Structural changes are required by governments to the tax system, educational systems, and social welfare systems. A  progressive tax system is essential, and countries that do not have one will need to move towards one over the next few years. This will be politically difficult, especially in the USA, where President Reagan's trickle-down economics exacerbated the wealth distribution problem even further.  President Biden is doing the opposite of Reagan's; he is supporting unions, reducing taxes on lower-income families, increasing taxes on the wealthy, and increasing investment in infrastructure and public works.

Joe Biden's economic plan explained. (2019, September 19). Retrieved from https://www.investopedia.com/joe-biden-s-economic-plan-save-the-middle-class-4769869

People over 50 whose jobs will be lost are most vulnerable, especially if they are unwilling to retrain and reskill themselves.  Some might believe they have little chance of landing a job even if they retrain because of ageism. Young people who are in university studying for degrees that may be obsolete as soon as they get their certificates are also at risk unless they change course and train in a relevant area where they can gain suitable employment. Technology has been moving so fast that even experts cannot keep abreast of the changes happening.

"AI is a great and powerful technology that should be embraced. Still, Governments need to track its impact on the labor market and plan for the future by implementing policies that will soften the impact on their citizens."

Some countries such as Ireland, with its young, educated population, are in a reasonably good position for now as unemployment levels are low compared to other European countries. That does not mean that they will be immune to the impacts of unemployment in the future, especially if industries relocate. We have to live with uncertainties but plan for the future to avoid being caught out. Governments need to track closely what is happening with employment and pay.

There are mitigating options that Governments can take, including the list below, but most will be difficult to implement because politics may get in the way:

1.          Implement a universal social income for all, regardless of whether they work, but this option is very costly and may result in unintended consequences.

 

2.          Pay a living wage to people over 50 who are long-term unemployed.

 

3.          Set up retraining courses for the unemployed and proactively re-integrate them into the workplace.

 

4.          Increase Corporation Tax and implement an additional tax on super profits. Politically, this would not be easy unless all countries did the same. Also, the method of calculating superprofits would have to be agreed upon.

 

5.          Increase Capital Gains Tax, gift tax, and capital transfer tax.

 

6.          Implement a tax on unused assets that are not generating income, such as development land that is not used within a reasonable period for building and on derelict buildings. This is a hot subject these days because of homelessness.

 

7.          Reintroduce tax relief on mortgage interest payments for all.

 

8.          Subsidize housing for low-income people. Some countries already do this.

 

9.          Allow employees to be represented on boards of large public companies with voting rights and give them a say in how the company is run.

 

10.       Legislate that companies allocate at least 10% of their voting equity to employees.

 

11.       Legislate that CEO salaries and benefits can only be a certain max-multiple of average wages.

 

12.       Give trade unions more recognition because wages have not increased in real terms over the last forty years. While the wealthy have been reaping great rewards, workers are not gaining from those super profits. The economy should pay workers a fair wage because they spend it, and that's good for the economy. Shareholders add the money to their already enormous money reserves. This means the rich get richer, and the workers remain as they are, with just enough to live on. This is not sustainable in the long run and puts the capitalist system and democracy at risk. Also, economies lose out unless these dividends are reinvested in income-producing activities.

 

13.       Give tax relief for inner town and city conversion of buildings to housing.

 

14.       Buy up empty offices at valuation and convert them to social housing for families.

 

15.       Investing some tax income for future social welfare pensions is essential.

 

16.       Introduce a higher inheritance tax rate. 

 

17.       Invest more in health and education using the best technologies available.

 

18.       Implementing a wealth tax is not a very clever way to raise taxes. Some politicians believe wealth tax is a great idea. We already have tax on wealth through property tax, capital gains tax, capital transfer, and gift tax. Review these taxes rather than raise massive controversy over a wealth tax many countries have dropped because it does not raise the expected tax income amounts, and remember, wealth is mobile and can be moved to other more friendly tax jurisdictions.

 

Some of the above ideas have political and other problems attached, and there is no simple way to solve the equality problem, so more discussions about the subject are needed to find workable solutions and help people become conditioned to the necessary changes.

If unemployment is too high, the economy will tank, and the whole system could break down, so solutions must be found to avoid this. It's not good that 10% of the population owns 70% of the personal wealth of that country ( see below).

According to an article written by Dr Sarahh Kerr and Dr Michael Vaughan dated 27th May 2024, www.jrf.org.uk

"Wealth inequality is high and rising and more marked than income inequality. In the UK, the bottom 50% of the population owned less than 5% of wealth in 2021, and the top 10% a staggering 57% (up from 52.5% in 1995). The top 1% alone held 23% (World Inequality Lab, 2022). The ratio of wealth to income has risen in the UK from 2.3 to 1 in 1948, to 5.7 to 1 in 2020 (in Savage et al., forthcoming). It has a significant impact on life chances and outcomes (Callaghan et al., 2021), and it generates high levels of poverty amongst those with no wealth assets to fall back on. No nations have high levels of economic inequality and low levels of poverty." 

It is a similar but worse scenario in the USA, where the wealthiest 10 % of Americans have around 70 % of all personal wealth compared to roughly 2% the entire bottom half. Chandler, D. (2024, May 14). America needs a new economic model. Retrieved from https://time.com/6977602/america-economy-inequality-essay/

Rita Mc Grath, author of  Seeing Around Corners, wrote in an article A Pitchfork moment has arrived — Part 1

 "Nick Hanauer, a wealthy entrepreneur and unapologetic capitalist, has been vocal in advocating for sharing the spoils of the capitalist system, warning his fellow plutocrats that "the pitchforks are coming for us!" Citing Henry Ford as an inspiration, he notes that "These idiotic trickle-down policies are destroying my customer base!" Paying living wages is a key policy that Hanauer believes governments should require so that all employers are on a level playing field with respect to labor costs, in addition to collecting a greater share of taxes from the wealthy to fund essential government services. Peter Georgescu, a refugee and former CEO of Young & Rubicam has been sounding the alarm at what he calls the "slow suicide" of capitalism and has likewise called for higher wages for workers. "

McGrath, R. (2020, December 9). A pitchfork moment has arrived — Part 1. Retrieved from https://rgmcgrath.medium.com/a-pitchfork-moment-has-arrived-part-1-bc68b945de6

Caring about this issue is not just about a fairer taxation system or redistribution of wealth; it's about preserving our democracy and the capitalist system that has served us well in the past, but now it is broken and needs fixing.

Many countries introduced quantitative easing to boost their economies after the last Great Recession in 2008, but that benefitted the wealthy more than lower-income families. It is also causing homelessness because families cannot afford to purchase a home due to house price inflation, as well as a shortfall in house building.

Long-term policies the wealthy will not like are necessary to redistribute wealth over time. Few politicians talk about this subject, except Sen. Bernie Sanders, Sen. Elizabeth Warren, and a few others, because they need funding from rich people to get into Government. Once there, they are surrounded by lobbyists and wooed by the wealthy, so they don't get to make the hard choices necessary to make fundamental societal changes. It's not good enough that the system does just enough to keep the masses contented because they are adversely impacted by those policies that result in unfair distributions of wealth. For example, in some countries, health systems are creaking at the seams, with long waiting periods for treatment. While more efficiency is necessary in the health systems, they need more capital investment to upgrade their IT systems, increase the number of beds, and employ more medical staff.

Superwealthy individuals, as well as corporations, need to pay more taxes. Governments have to introduce a more progressive tax system in countries where this is not the case to support the unemployed, improve services, and invest in the infrastructure.

Governments need to implement AI so they can use it to streamline their systems, have a joined-up approach to services, and use analytics to assess where tax income should be best spent using acceptable criteria. How many homes could be built from savings in government spending in Ireland due to better efficiencies and better decision-making? The overspending on large projects such as the new children's hospital is unacceptable, and measures must be implemented to stop this waste of money. I am sure the same thing applies to other countries, but that does not make it acceptable because it is the poor in society that suffer the most.

Everyone is accountable to make this a more just world, including voters, and more discussion is needed about the best policies for the future.

"AI is a positive force for change and should be welcomed, but it needs to be accompanied by good governance, and humans decide where to use it."

Noreen Hynes, B.Comm, FCA, Author Published June 2024

I would welcome some feedback on my blog, and I would be delighted if you would subscribe to my website, www.noreenhynes.com and check out my other articles there, buy my book Start-Up Checklist For Success- The Essentials You Need To Know, and please leave a review on Amazon. https://www.amazon.co.uk/dp/B0BYZYHHPC

Thank you



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