Fed's Barr: AI Boosts Productivity but May Widen Wealth Gap

[Mexico City = Shim Young-jae, Correspondent] Artificial Intelligence (AI) can enhance worker productivity and create new jobs, but if the benefits are concentrated among large tech companies and high-income individuals, income and asset inequality could worsen, warned Michael Barr of the U.S. Federal Reserve (Fed). Policies that broadly distribute the benefits of AI through education, job training, and market competition will determine the future direction of inequality.

On the 14th (local time), Barr spoke at the 3rd Financial Inclusion Conference hosted by the Fed, addressing the impact of AI on living standards and income and asset inequality in the U.S. According to the Fed, Barr stated that AI could serve as a productivity tool that complements low-skilled workers' abilities, but it also has the potential to displace some workers and concentrate economic benefits among a few companies.

Two Futures Created by AI

Barr divided the potential futures brought by AI into two scenarios.

The first scenario is one where AI increases worker productivity and broadens access to knowledge and skills. If everyone can receive education, coaching, writing, programming, and problem-solving support through AI, the abilities that were previously available only to those with high education levels, assets, or professional advice could be disseminated to a larger population.

The opposite scenario also exists. If AI displaces low-income and middle-class jobs while only increasing the income and assets of high-income individuals and AI company owners, existing inequalities could worsen.

Barr remarked, "We do not yet know whether AI will reduce or expand income and asset inequality. The important thing is not what AI can do, but what we choose to do with AI."

He explained that universal technologies from the past, such as electricity, telephones, and personal computers based on the internet, have increased productivity and living standards in the long run, but many workers lost jobs or suffered long-term harm during the process of new technologies becoming established.

The spread of the internet also increased overall economic productivity, but it provided greater benefits to accountants and others engaged in information-intensive work. The gap with occupations like construction workers, who found it difficult to directly enjoy the productivity effects of the internet, actually widened.

Top 20% Hold 52% of Total Income

To examine the ripple effects of AI, Barr first highlighted the current levels of income and asset inequality in the U.S.

According to the Fed, in 2024, the top 20% of income households in the U.S. will account for 52% of total income, while the bottom 20% will only account for 3%. The U.S. ranks as the sixth most unequal country among the G20 in terms of income inequality in the same year.

The concentration of assets was even greater than that of income. The bottom 50% of U.S. households held less than 3% of total assets. In contrast, the top 10% owned 59% of total assets, and the top 0.1% accounted for 15% of total assets.

Barr explained that households with assets can reinvest their investment returns, leading to compounding wealth, which could continuously widen the gap with households that primarily rely on wages.

He saw the key question of the AI era here: whether AI will provide more people with access to valuable skills and productive jobs or reinforce the advantages already concentrated among a few.

Young People and New Entrants Likely to Be Displaced First

Barr warned that if AI reduces labor demand, new entrants to the labor market are likely to be the first to be affected.

Historically, technological innovations have tended to benefit highly educated and skilled workers more. However, generative AI can perform tasks such as document writing, analysis, and basic coding that have traditionally been handled by college-educated young people, potentially leading to different outcomes than previous technological changes.

According to the Fed's recent Household Economic and Decision-Making Survey, 43% of workers with graduate degrees reported using AI in the past month, while the usage rate among workers with a high school diploma or less was only 10%.

Workers using AI were more likely to believe that it would help their careers rather than replace their jobs. However, Barr noted that whether this difference is advantageous or disadvantageous for workers not using AI depends on whether AI replaces or complements labor.

If AI replaces people, occupations with lower exposure to AI may be relatively safe. Conversely, if AI enhances the productivity of existing workers, those who cannot utilize AI may fall behind.

So far, there is little evidence that AI has caused large-scale job losses across the U.S. economy. However, Barr explained that signs are emerging that AI has made it more difficult for young people to secure their first jobs in certain occupations.

Concentration of AI Companies Leads to Wealth Concentration

The potential for the AI market to be reshaped around a few large companies was also highlighted as a major risk.

AI is an industry with strong economies of scale, where performance improves with more data, computing resources, and model development capabilities. Large companies can secure more data and invest larger computing resources to improve models. Improved AI can also be utilized in the research and development of next-generation models.

This structure continuously strengthens the competitive advantage of leading AI companies. The reason for the massive investments concentrated in so-called hyperscalers, or giant tech companies, lies here.

Barr stated that if AI develops into a cheap and widely available product, startups and small businesses could also leverage cutting-edge technology to innovate and create jobs.

However, if a few AI companies dominate the market, investment returns could concentrate among AI company owners. The productivity gap between companies that can access cutting-edge AI and those that cannot may continue to widen.

He presented this not as a definitive outlook but as a possible scenario. Whether market competition is maintained and the cost of technology access decreases will determine the level of wealth and income concentration.

AI May Further Enhance Productivity of Low-Skilled Workers

Barr also specifically pointed out the possibility that AI could alleviate inequality.

In one experiment, professionals with college education performed report writing and analysis tasks and then used AI to redo similar tasks. With AI, the time taken to complete tasks was reduced by an average of 40%, and the quality of the results improved by 18%.

Notably, the participants who had lower performance when not using AI showed the greatest improvement. AI provided greater productivity enhancements to low-skilled individuals, thereby reducing the performance gap among workers.

AI can also reduce the time and cost required for skill acquisition. Individuals who lacked accounting, finance, and coding skills and could not start their own businesses could use AI's assistance to turn their ideas into actual products or services.

Barr assessed that the rapid adoption of AI by small businesses is a sign that AI could lower the barriers to entrepreneurship.

He also mentioned the possibility of AI creating new jobs. In the U.S., the number of full-time influencers making a living through social media is estimated to be around 12 million, a profession that was unimaginable ten years ago, emerging due to the spread of the internet and social media.

He explained that technological advancements do not merely eliminate jobs but also change the nature of work.

Spreadsheet programs like Excel have automated some basic accounting tasks but have not eliminated the profession of accountants. Instead, they have increased accountants' productivity and changed their roles to perform more complex tasks. AI could bring about similar changes across the economy.

Basic Competencies for Future Jobs Will Be AI Utilization

Barr predicted that in the AI era, the ability to use AI is likely to become a fundamental job competency, similar to today's computer literacy.

Workers will need to give precise commands to AI and integrate AI into their work processes. The ability to supervise coding agents and various AI agents will also be necessary.

It will become increasingly important to verify the answers and analyses provided by AI and to distinguish plausible but incorrect information.

Barr believes that AI may replace jobs that only involve basic coding. However, at the same time, professional developers can supervise AI agents while performing more tasks. Even individuals without formal coding training can use AI to turn their ideas into programs.

Calculators, word processors, and presentation programs were once tools used by experts, but they have now become basic competencies in most office jobs. AI could follow a similar path.

He emphasized that education should not be a one-time event. Given the rapid changes in AI technology, affordable and high-quality education and training should be provided throughout workers' entire career span, not just in school.

He also pointed out that merely learning AI technology is not sufficient.

Barr believes that curiosity, flexibility, common sense, and human judgment will be key competencies in the AI era. The ability to formulate insightful questions, distinguish plausible errors from valid logic, and make ethical judgments will be important.

He stressed the need to invest in human-centered competencies, relationship-building skills, and humanities education alongside technical training.

"It’s Not AI, But Society’s Choices That Determine the Outcome"

Barr concluded that AI policies, education, job training, workforce development, competition policies, and tax policies will determine inequality in the AI era. While these policies fall outside the Fed's authority, they are core tasks that other policy authorities, such as the government and Congress, must address.

If competition among leading AI companies is maintained, technology costs will decrease, allowing consumers, workers, and small businesses to broadly enjoy the benefits of AI. Conversely, if a few companies secure market dominance, the economic benefits are likely to concentrate among a few companies and investors.

Barr stated, "The future of inequality is not determined solely by what AI can do, but by how we choose to utilize AI."

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