The productivity revolution of generative AI will take time to bear fruit

Line chart of labor productivity (GDP per hour worked in 2022 $constant) showing trend productivity growth has been lower since financial crisis

A boom in generative AI and pandemic-induced shiftwork will unleash a new era of faster productivity growth across the rich world, economists say, though it could take a decade or more for advanced economies to reap the benefits all benefits.

After surging during the initial stages of the pandemic, The Conference Board, a global business research organization, said this month it expects productivity to barely grow this year in mature economies. The board believes this weakness will continue over the next decade, citing the rising cost of capital and ongoing economic and geopolitical uncertainty.

The forecasts highlight the challenges facing advanced economies, where the struggle to raise productivity since the 2008 financial crisis has held back output and wage growth.

However, economists believe the boom in AI investment and several workplace trends that have taken off during the pandemic will eventually produce compelling results.

Chad Syverson, a professor at the Chicago Booth School of Business, said there is now a case for data-driven optimism about productivity, with artificial intelligence, new business formations and people changing jobs all poised to produce results.

While productivity growth remained weak on paper, he believed the results of recent changes in workplace practices, plus any artificial intelligence benefits, would take some time to get into the numbers.

Line chart of labor productivity (GDP per hour worked in 2022 $constant) showing trend productivity growth has been lower since financial crisis

Very little of this stuff is plug and play … companies have to invest a lot of resources to reconfigure their business model for this new thing, Syverson said. New software, regulatory issues, all that stuff needs to be fixed. There is a time when technology is around and you can see the benefits of it, but for many reasons… productivity goes down.

John Haltiwanger, a professor at the University of Maryland, agreed that artificial intelligence breakthroughs involving large language models would eventually boost the economy. The United States, he said, was now undergoing a transition similar to that of the late 1980s, when economist John Solow said: The computer age is seen everywhere except in productivity statistics.

The sweeping changes brought about by generative AI could eliminate what John Van Reenen, a professor at the London School of Economics, described as a lot of drudgery in workplace practices, improving efficiency and growth in the process.

However, previous technological advances have taken decades to achieve significant productivity gains.

It takes an enormous amount of time for companies to change, said Nick Bloom, a professor at Stanford University, citing the example of the invention of electric motors at a time when most industrial buildings were configured for the water or steam power.

There are already big claims about the transformative effects of generative AIs on productivity. A recent paper released by the Brookings Institution, written with the assistance of the GPT4 model, cites evidence that it can help programmers work twice as fast, cut the time it takes to complete certain writing tasks in half, and make call centers more productive. by 14%.

Graph showing more business formation in the US after the pandemic

Investment banks, meanwhile, are encouraging clients to buy into generative AI. Morgan Stanley researchers say US productivity is poised to rebound, in part because demographic trends, combined with government friendshoring policies, will make it more difficult for multinational corporations to tap into a global pool of cheap labor and force them to automate.

An AI-focused productivity revolution could be broader than that seen after the introduction of personal computers, they suggested in a recent note, with sectors such as retail and manufacturing poised to invest.

Haltiwanger pointed to a surge in the creation of new companies, largely driven by the move from inner cities to suburban work-from-home hotspots.

Provided these fledgling businesses can weather rising US interest rates and any turmoil at regional banks, the fruits should follow. Whenever you experience a change in the way you do business, both spatially and in areas of the economy, there’s productivity growth across the board, he said.

Van Reenen was more skeptical that labor shortages would drive innovation. While a smaller pool of workers could change the direction of technological change as in Japan, where an aging workforce spurred investment in robotics, it was also likely to mean fewer new ideas.

The Conference Board also sought to temper what it called the excitement surrounding technological breakthroughs.

Bloom, meanwhile, warned it was hard to predict when the big productivity tipping points would come. The development of the steam engine, the electric motor, the personal computer and the Internet did not generate a measurable impact on productivity within five years. So it’s hard to think what it will do. i include [generative] AI in this.

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