IMF Expresses Concerns Over AI-Induced Job Losses and Rising Inequality

On June 18, the International Monetary Fund (IMF) released a significant economic report titled "Broadening the Benefits of Generative Artificial Intelligence: The Role of Fiscal Policy," addressing the critical implications of AI on the job market and fiscal policy.

The report raises urgent concerns about the potential displacement of jobs by AI, questioning whether productivity growth can coexist with rising unemployment. Generative AI is portrayed as a powerful tool that could enhance productivity and improve public service access. However, the IMF highlights alarming risks, particularly regarding widespread job loss and increasing inequality. The transition to AI is expected to impact high-skilled and white-collar roles most severely, a shift distinct from previous technological revolutions, which primarily affected blue-collar jobs.

Ella Dabla-Norris, co-author and Deputy Director of the IMF’s Fiscal Affairs Department, reinforces the notion of a challenging transition for workers facing unemployment. Older workers, in particular, may struggle to adapt to new skill requirements in the AI era.

The IMF suggests that advancements in AI might further automate blue-collar jobs, intensifying income and wealth disparities as unemployment rises alongside average wages. The report warns of a potentially oligopolistic market where wealth becomes concentrated among a few dominant firms.

Earlier in the year, the IMF cautioned that nearly 40% of jobs globally could be affected by AI, echoing Goldman Sachs' prediction that AI might replace 300 million jobs worldwide.

On a more hopeful note, the IMF's models indicate that over a five-year horizon, AI could eventually lead to lower unemployment rates and increased worker income. However, the projected 5-10 year transition period presents significant hurdles for displaced workers.

To address these challenges, the IMF advises policymakers to adopt a proactive approach in preparing for disruptive AI scenarios. Recommended strategies include enhancing unemployment insurance, reforming education and training policies, and promoting "lifelong learning" initiatives to help workers adapt to the evolving job landscape.

The IMF advocates for industry-based training, apprenticeship programs, and skills retraining initiatives to support workers transitioning to new roles. On taxation, the IMF recommends against imposing specific taxes on AI, as this could stifle productivity growth. Instead, it suggests increasing capital gains, value-added, and corporate taxes to mitigate rising wealth inequality.