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A. The macroeconomic and labour market effects of Artificial Intelligence Innovations in the UK
Funder: BRIEF AWARDS
Duration: August 2023 - July 2024

Artificial Intelligence (AI) introduces multidimensional changes in the global economy that were unimaginable twenty years ago. The theoretical literature in economics has predominantly focused on automation technologies and robotics, delineating three key mechanisms linking them with the macroeconomy. These technologies may enhance labor productivity, displace certain workers, or generate entirely new job opportunities. Consequently, the effect on labor markets remains ambiguous. Our study contributes to this body of literature by concentrating on innovations in AI-enabled technologies and quantifying their impact on labor productivity, unemployment, and economic growth in the UK over a 40-year period (1982-2023). Our methodology consists of two stages. First, we employ textual analysis to identify and classify AI-related innovations within patent data. Second, we utilize a Bayesian VAR model to analyze the short- and long-term impacts of these innovations on labor markets and economic growth. Our findings indicate that information about future AI innovations initiates a prolonged economic expansion. According to our VAR output, employment, hours worked, real wages, and investment all rise in response to the shock of this news. However, the shock has no immediate effect on productivity. Over time, productivity exhibits a robust rise and remains elevated throughout, following a shape that resembles the S-shaped pattern typical of the gradual diffusion of new technologies