AI, Demand and the Impact of Productivity-enhancing Technology on Jobs: Evidence from Portugal

Abstract

This study examines whether AI, as revealed in productivity improvements, may have the ability to threaten sectoral employment in Portugal. We first present a theoretical framework based on a supply and demand model for sectoral output. This model predicts that the impact of AI will depend on the response of labor demand to two opposing forces: as productivity improves less labor is required to produce the same output, while more output is demanded because of lower production costs brought about by higher productivity, which creates more jobs. Our estimates of the industry-level elasticities of employment with respect to productivity for a sample of 32 industries over 1995-2017 using a Bayesian multilevel approach are all negative and surprisingly similar across sectors.