artificial intelligence

AI is likely to create more income inequality and stoke social tensions unless policy makers take aggressive steps to prevent it, says the International Monetary Fund (IMF).  “In most scenarios, AI is likely to worsen overall inequality,” says the IMF. The report comes as world leaders gather in Davos, Switzerland, for an annual meeting that puts AI as a central concern with some 30 sessions devoted to the subject.

While the IMF notes the net effect of AI is difficult to foresee, “we will need to come up with a set of policies to safely leverage the vast potential of AI for the benefit of humanity.”

The IMF is particularly concerned about jobs. “One of the things that sets AI apart is its ability to impact high-skilled jobs,” says the IMF in its detailed 42-page report.  “As a result, advanced economies face greater risks from AI—but also more opportunities to leverage its benefits—compared with emerging market and developing countries.” While 40% of global employment is exposed to AI, that number rises to 60% in advanced economies, largely because their employment structure is focused on cognitive-intensive roles.

“Roughly half the exposed jobs may benefit from AI integration, enhancing productivity,” says the IMF. “For the other half, AI applications may execute key tasks now performed by humans, which could lower labor demand, leading to lower wages and reduced hiring. In the most extreme cases, some of these jobs may disappear.”

Emerging markets and developing countries may be spared some of the disruptive effects of AI because they lack the required infrastructure. However, in the long term, this disparity may create a widening inequality among nations.

AI may become a polarizing technology as those workers who can harness AI will likely see a rise in productivity and wages. Young, college-educated workers are the most vulnerable yet the most adaptable at the same time. Older workers may struggle to adapt as they face additional barriers in mobility and are less likely to find new employment within a year of their termination, due to a range of factors including age-related bias, says the IMF. On the other hand, there’s a chance that if productivity gains are sufficiently large, income levels could surge for most workers, although gains for those at the top will become larger.

“If AI significantly complements higher-income workers, it may lead to a disproportionate increase in their labor income,” the IMF suggests. “Moreover, gains in productivity from firms that adopt AI will likely boost capitol returns, which may also favor higher earners. Both of these phenomena could exacerbate inequality.”

Establishing a regulatory framework for AI is critical. In addition, the IMF says, “It is crucial for countries to establish comprehensive social safety nets and offer retraining programs for vulnerable workers. In doing so, we can make the AI transition more inclusive, protecting livelihoods and curbing inequality.” In more pointed terms, the IMF says “ensuring social cohesion is paramount.”

How well countries can deliver on that may depend on how prepared they are for AI. The IMF issued an AI Preparedness Index that ranked 125 countries, measuring factors like digital infrastructure, labor policies, innovation, ethics and regulation. Singapore and the United States topped the list.