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| Structural Unemployment, Time Allocation, and the Artificial Intelligence Revolution |
| WANG Yubing, GUO Kaiming, GONG Liutang
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| Lingnan College, Sun Yat-sen University; Guanghua School of Management, Peking University |
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Abstract As China's population structure and economic structure undergo a rapid transition, its labor market is also seeing significant changes, with more severe structural unemployment as its principal contradiction. Structural unemployment is caused by a mismatch between the labor supply structure and labor demand structure, which makes it difficult both for workers to find jobs and for firms to hire workers. This paper focuses on the role of the artificial intelligence (AI) revolution and well-functioning government in structural transformation and structural unemployment, offering a new perspective on structural unemployment and related policy implications. The literature on structural transformation and AI has largely overlooked structural unemployment and home production. This paper is the first to focus on explaining structural transformation and structural unemployment from the perspective of AI and home production.
We present a multi-sector general equilibrium dynamic model with structural changes in employment and production, in which time is allocated between the market and home. In the model, high-skill and low-skill labor are employed in skill-intensive and unskilled-intensive industries, respectively, in the market and home. We show that households' time allocation between the market and home determines the labor supply structure and employment structure and, in turn, the industrial structure. The employment structure and industrial structure simultaneously affect the labor demand structure and time allocation. Moreover, AI technology may initiate a revolution in the production processes in the market and home. Thus, the key insight for understanding the relationship between AI and structural unemployment is that AI simultaneously promotes capital deepening in the market and home, which alters the transitional path of employment structure and production structure, resulting in a considerable impact on structural unemployment.
We find that changes in labor supply may aggravate the mismatch between the demand structure of high-skill and low-skill labor and the supply structure of labor with high and low levels of education, causing more severe structural unemployment. The AI revolution simultaneously promotes the structural transformation of production in the market and home, which may cushion the negative impact of structural unemployment. More specifically, because high-skill labor has a comparative advantage in skill-intensive industries, when the elasticity of substitution between industries is low and the elasticity of smart machines and labor in unskilled-intensive industries is high, the AI revolution in unskilled-intensive industries speeds up the process of machines replacing labor, and increases the relative price of skill-intensive industries. As a result, both high-skill and low-skill labor are drawn from unskilled-intensive industries to skill-intensive industries, leading to higher relative demand for high-skill labor; thus, the process of structural transformation helps tackle structural unemployment. Similarly, because low-skill labor has a comparative advantage in home, when the elasticity of smart durables and labor in home is high, the AI revolution in home speeds up the process of durables replacing labor and increases the opportunity cost of home production. As a result, both high-skill and low-skill labor are drawn from home to the market, leading to a greater relative supply of low-skill labor, which also helps tackle structural unemployment. If the rapid structural transition of the labor supply and the slow development of AI technology intensify structural unemployment, the government should invest in digital infrastructure and new infrastructure in unskilled-intensive industries and home, which would effectively tackle structural unemployment by accelerating the AI revolution and structural transformation.
To tackle structural unemployment and promote structural transformation, we derive the following policy implications from our findings. First, the government should support and guide research and development into AI technology in labor-intensive industries and unskilled-intensive industries, conforming to the law of technological revolution in AI and new digital technology. Second, the government should initiate a technological revolution in home production using AI technology and increase the demand for smart durables, which may be an effective tool to simultaneously expand domestic demand and deepen supply-side structural reforms. Third, the government should comprehensively strengthen the construction of digital infrastructure and new infrastructure, build a modern infrastructure system, and promote the integration of the digital economy and real economy. Fourth, the government should strengthen the strategic layout of talent, improve the system of lifelong vocational training, and build a talent team with a rational structure and high quality to achieve a better match between the labor supply structure and skill demand structure.
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Received: 23 April 2023
Published: 17 July 2024
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