Fears of a big rise in “technological unemployment” are misplaced; if anything the net impact on labour demand will ultimately be positive. But the potential for AI to affect a much wider range of sectors than past technologies means there will inevitably be substantial labour market dislocation. And if, as we suspect, AI further increases wages for highly skilled workers and if returns to capital are concentrated among the top technology firms, then income inequality will probably rise and labour’s share of income fall. The impact of AI on inflation is likely to be modest but to the extent that there is any effect it is likely to be to lower inflation in the years immediately following widespread adoption.
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