AI, Demand and the Impact of Productivity-enhancing Technology on Jobs: Evidence from Portugal

ABSTRACT

This study examines whether AI, as revealed in productivity improvements, may have the ability to threaten sectoral employment in Portugal. We first present a theoretical framework based on a supply and demand model for sectoral output. This model predicts that the impact of AI will depend on the response of labor demand to two opposing forces: as productivity improves less labor is required to produce the same output, while more output is demanded because of lower production costs brought about by higher productivity, which creates more jobs. Our estimates of the industry-level elasticities of employment with respect to productivity for a sample of 32 industries over 1995–2017 using a Bayesian multilevel approach are all negative and surprisingly similar across sectors.

KEYWORDS:

• Artificial intelligence
• productivity
• demand
• employment
• Portugal
• Bayesian multilevel modeling

JEL CLASSIFICATION:

• E24
• J20
• O30

Acknowledgments

We wish to thank the guest editors, two anonymous reviewers and participants at the INFER-PUEB Workshop on New Economics: Innovation, Digitalization and Revolution and the 22^nd INFER Annual Conference for the interesting comments and suggestions on earlier versions of this work.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. Moscoso Boedo (2019), for the case of the former communist economies, examines how the optimal choice of technologies, motivated by the structural break corresponding to the collapse of communism in the early 1990s, explains the costly transition of these countries. In this specific case, the initial relatively high availability of human capital seems to have led to increases in the stock of skilled workers and a decline in physical capital.

2. This concern with the downward trend in the labor share observed in many developed countries since the 1980s has resulted in an expanding literature trying to identify its causes, namely the substitution of capital for labor (see e.g. Growiec 2012; Elsby, Hobijn, and Sahin 2013).

Additional information

Funding

This work has been funded by National Funds of the FCT – Portuguese Foundation for Science and Technology, projects PTDC/EGE-ECO/29822/2017 (“It’s All About Productivity: contributions to the understanding of the sluggish performance of the Portuguese economy”) and UIDB/05037/2020.

Notes on contributors

Pedro Bação

Pedro Bação Ph.D. in Economics, Birkbeck College - University of London. Associate Professor at the Faculty of Economics of the University of Coimbra. Published in several international journals, such as Economics Letters, Economic Modeling, Open Economies Review, Review of Economics of the Household, Scottish Journal of Political Economy, Studies in Nonlinear Dynamics and Econometrics, The World Economy. Coauthored several books on the Portuguese economy and the international financial crisis.

Vanessa Gaudêncio Lopes

Vanessa Gaudêncio Lopes is an Economist and MsC in Economics, Faculty of Economics, University of Coimbra.

Marta Simões

Marta Nunes Simões PhD in Economics, Assistant Professor at the Faculty of Economics of the University of Coimbra and a researcher affiliated with the Center for Business and Economics Research (CeBER). Her research interests include economic growth, productivity, human capital, innovation and inequality.