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Generative AI may create a socioeconomic tipping point through labour displacement

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  • Occhipinti, Jo-An
  • Hynes, William
  • Prodan, Ante
  • Eyre, Harris
  • Green, Roy
  • Burrow, Sharan
  • Tanner, Marcel
  • Buchanan, John
  • Ujdur, Goran
  • Destrebecq, Frederic
  • Song, Christine
  • Carnevale, Steven
  • Hickie, Ian B.
  • Heffernan, Mark

Abstract

Work is fundamental to societal prosperity and mental health, providing financial security, a sense of identity and purpose, and social integration. Job insecurity, underemployment and unemployment are well-documented risk factors for mental health issues and suicide. The emergence of generative artificial intelligence (AI) has catalysed debate on job displacement and its corollary impacts on individual and social wellbeing. Some argue that many new jobs and industries will emerge to offset the displacement, while others foresee a widespread decoupling of economic productivity from human input threatening jobs on an unprecedented scale. This study explores the conditions under which both may be true and examines the potential for a self-reinforcing cycle of recessionary pressures that would necessitate sustained government intervention to maintain job security and economic stability. A system dynamics model was developed to undertake ex ante analysis of the effect of AI-capital deepening on labour underutilisation and demand in the economy using Australian data as a case study. Results indicate that even a moderate increase in the AI-capital-to-labour ratio could increase labour underutilisation to double its current level, decrease per capita disposable income by 26% (95% interval, 20.6–31.8%), and decrease the consumption index by 21% (95% interval, 13.6–28.3%) by mid-2050. To prevent a reduction in per capita disposable income due to the estimated increase in underutilization, at least a 10.8-fold increase in the new job creation rate would be necessary. Results demonstrate the feasibility of an AI-capital-to-labour ratio threshold beyond which even high rates of new job creation cannot prevent declines in consumption. The precise threshold will vary across economies, emphasizing the urgent need for empirical research tailored to specific contexts. This study underscores the need for cross-sectoral government measures to ensure a smooth transition to an AI-dominated economy to safeguard the Mental Wealth of nations.

Suggested Citation

  • Occhipinti, Jo-An & Hynes, William & Prodan, Ante & Eyre, Harris & Green, Roy & Burrow, Sharan & Tanner, Marcel & Buchanan, John & Ujdur, Goran & Destrebecq, Frederic & Song, Christine & Carnevale, St, 2025. "Generative AI may create a socioeconomic tipping point through labour displacement," LSE Research Online Documents on Economics 128885, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:128885
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    References listed on IDEAS

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    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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