'Debate on Whether Labor Productivity Will Increase in the AI Era'
"Doubtful in the Short Term," Says Fed Chair
"Expecting Productivity Improvement," Companies Actively Seek Solutions
"The productivity growth rate of the (U.S.) private nonfarm sector will increase by an average of more than 1.8% annually from 2020 to 2029." In 2021, two American economists made a bet. It was a wager on whether U.S. labor productivity would rise rapidly in ten years. The Congressional Budget Office (CBO) forecasted growth rates lower than those mentioned in the bet, at 1.5% (average from 2021 to 2025) and 1.4% (2026 to 2031). Professor Erik Brynjolfsson of Stanford University placed a $400 (about 540,000 KRW) bet with the nonprofit foundation "Aronbet" that labor productivity would increase by an average of more than 1.8% annually due to the use of artificial intelligence (AI). On the other hand, Professor Robert Gordon of Northwestern University bet that Brynjolfsson’s prediction was wrong.
A bet on the outlook for U.S. labor productivity between Eric Brynjolfsson, a professor at Stanford University, and Robert Gordon, a professor at Northwestern University, is currently underway at the nonprofit foundation 'Eorongbet'. (Photo by Eorongbet website screenshot)
The outcome will be decided as soon as the U.S. Bureau of Labor Statistics announces the private nonfarm sector productivity growth rate for the fourth quarter of 2029. This bet draws attention because the two economists focus on the role of generative AI in boosting labor productivity.
Professor Brynjolfsson, who made the bet, said, "AI is affecting almost every industry," predicting that artificial general intelligence (AGI) will increase productivity and that this will be reflected in official statistics over several years. Conversely, challenger Professor Gordon questioned, "Can robots and AI bring about a new renaissance comparable to the digital boom since 1995?" He expressed skepticism, noting that "even though the U.S. robot stock doubled over the past decade, manufacturing productivity growth was only 0.1%," showing a negative stance.
Three years have passed since the economists made their bet, but the question of whether generative AI increases labor productivity remains unanswered. The New York Times (NYT) recently reported that "economists are skeptical about whether productivity improvements from AI are showing up in the data," but "large companies are discussing adopting AI to improve efficiency."
"Productivity improvement in the short term is doubtful"... Fed Chair also skeptical
According to reports, the Federal Reserve (Fed) and some others have responded that it is too early to judge whether AI is immediately boosting labor productivity. Since generative AI technology is still in its early stages, it has not yet expanded or been widely adopted enough to be reflected numerically in productivity indicators, which is the general consensus. Fed Chair Jerome Powell stated in January that while there is potential for productivity gains from AI, "it will not be easy in the short term and will likely take place over a longer period."
John C. Williams, President of the New York Fed, also expressed in February that it is premature to make such a judgment. In an interview with the U.S. online media Axios, he said, "After a recent Fed event related to AI, all participants agreed that AI is very important and could be one of the key factors driving strong productivity growth in the future." However, he added, "I don’t know if AI can actually increase productivity. It’s too early to tell."
Joseph Davis, Global Chief Economist at investment bank Vanguard, said that in the second half of 2020, the company’s analysts predicted AI could transform the U.S. economy, estimating that this technology could reduce working hours by 20% in about 80% of job categories. However, he added, "We still cannot confirm these effects in the data."
Not all opinions are cautious. Earlier this year, at the American Economic Association meeting held in San Antonio, Texas, several scholars focused on productivity improvements due to AI. Tanya Banerjee, a professor at Columbia University, said, "Thanks to ChatGPT, the cost of using AI has decreased, and evidence of productivity improvements continues to emerge." Andrea Eisfeldt, a professor at UCLA, emphasized, "ChatGPT can complement or replace existing personnel, so AI can significantly increase productivity."
Using AI in any way possible... Companies focus on boosting productivity
Large companies are exploring ways to use AI to increase labor productivity. Walmart, the largest U.S. retailer, introduced a generative AI system last year to respond to customer inquiries at its U.S. locations. Donna Morris, Walmart’s Chief Human Resources Officer (CHO), stated at the time that this would reduce employees’ routine tasks and expected this process to lead to productivity improvements.
Macy’s, a leading U.S. department store, is conducting experiments actively using generative AI in marketing, such as drafting emails or supplementing online product descriptions. Designers at clothing company Abercrombie & Fitch reportedly use the AI graphic program Midjourney for brainstorming during the clothing design process. Samir Desai, Chief Digital Officer (CDO) at Abercrombie & Fitch, said it is difficult to evaluate how much time and resources have been saved by using generative AI, but "we will be able to understand this by checking how much more output a specific team can produce compared to previous years."
Additionally, global ice cream brand Ben & Jerry’s has installed generative AI in 8,000 freezers to manage inventory. Cameras equipped with AI monitor inventory in real time and trigger alerts. Ben & Jerry’s parent company Unilever explained, "This technology identifies products that will soon be out of stock and determines the most efficient routes for trucks to replenish them."
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