Raghuram Rajan Warns 'Jobocalypse' Is Coming But Says There's A Way Out

Even as artificial intelligence (AI)-related job displacement will become inevitable, its exact pace, extent, and the specific sectors it will impact the most remain unknown. Economist Raghuram G. Rajan has cautioned that while this disruption is on the horizon, minimizing its effects is crucial for maintaining social solidarity, and corporations must play a central role in the effort. Rajan argues that an AI-driven ''jobocalypse'' is near, but its severity is far from predetermined. The outcome will depend on how quickly companies adopt and implement AI, said Rajan in his latest note on the future of jobs.

Enhancing AI capabilities require models that are not only trained on existing data but also adaptive to new data generated through everyday use, according to the former Reserve Bank of India (RBI) Governor. However, Rajan has highlighted that currently, the corporate integration of artificial intelligence is moving slower than some might expect. Here's why:

ALSO READ: 80% New Startups Providing AI Solutions, Says Vaishnaw; Denies India Trailing In AI Race

-A recent US Census Business Trends and Outlook Survey shows only 20% of firms with more than 20 employees currently use AI. For larger businesses with at least over 250 employees, the adoption rate is slightly higher but still modest at 37%.

-Adoption is currently hindered by the difficulty of integrating AI into existing workflows, the need for adaptive data models, and uncertainty regarding costs. AI adoption is being held back by integration challenges and uncertainty over costs. ''Many large firms are still running pilots and postponing hiring or firing decisions as they await more clarity,'' said Rajan.

Silver Linings: Productivity And New Opportunities

Despite the looming threat of a "jobocalypse," Rajan emphasizes that the outlook is not entirely pessimistic. For example, he believes medical AI helping nurse practitioners diagnose and treat more illnesses. AI tech could also unleash a startup boom and lowers the barriers to starting a business. Here's the AI silver lining for the future that Rajan foresees:

-According to the leading economist, while some roles will become redundant, but AI holds the potential to make remaining jobs more productive and exciting by removing drudgery. Not to forget, AI will create entirely new jobs, such as AI engineers.

-Tech will spur new jobs required to supervise implementation. Through the "Jevons effect," AI-driven productivity can enable firms to reduce prices, increase sales, and boost employment. Jevons effect is an economic principle stating that when technology improves the efficiency of using a resource, total consumption of that resource rises rather than falls.

-AI can reduce startup costs for entrepreneurs, allowing them to establish sole proprietorships by having AI perform tasks like web programming and accounting. The technology can equip moderately skilled workers with higher-order capabilities, such as nurse practitioners utilizing medical AI to diagnose and treat more illnesses, according to Rajan.

ALSO READ: AI Is Boosting Productivity. So Why Aren't India's Biggest IT Firms Cutting More Jobs?
 

Implementation: A Strategy For Governments And Corporations

To successfully navigate the transition for corporations worldwide, Rajan argues that governments must address tax systems that currently bias corporations against human labor. ''The first task for any government, then, is to identify and address all the ways the tax system biases corporations against human labor,'' said the former RBI Governor in his note.

1. Unlike human workers, AI does not require companies to contribute to social-security payments. To level the playing field, governments could implement a carefully calculated tax on the AI tokens a firm uses. The precise tax rate will need to be calculated carefully to avoid impeding AI deployment, but it can be set low initially and then gradually raised with experience.

2. Governments should also consider offering tax credits to companies that periodically retrain workers, which could potentially be used to offset the AI token tax. ''If the government wants to apply such a policy to AI adopters, it could even require the credit to be used only to offset the token tax,'' explained Rajan.

ALSO READ: AI No Death Knell For Job Market; World Bank Report Shows Only 4.5% Roles At Risk

To Sum Up

As employment uncertainty grows, even the best and brightest may worry about accepting offers from an employer who could fire them whenever it finds that AI can do as well or better. Employers who promise to support their employees may ultimately enjoy an additional bonus: As their reputation grows, they will have a wider pool of high-quality candidates to choose from.

Corporate focus on this issue is growing, found Rajan. The share of US Fortune 150 CEOs focussing employee development in shareholder letters rose from 20% in 2008 to 44% in 2023. ''For the more that corporations engage in what may be the defining business challenge of our time—providing good jobs for humans—the more we can all look forward to a future of plenty,'' he concluded.

Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.