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Is the AI Boom Volatility-Biased Technological Change?

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Abstract

We show that AI technologies are oriented toward jobs and workers that typically exhibit greater volatility in labor market outcomes over the business cycle. Occupations currently most exposed to AI are those that have historically exhibited (i) greater volatility in employment levels over business cycles, (ii) higher job-switching rates by workers, (iii) higher job-finding rates, and (iv) a lower likelihood for workers to exit the labor force following a job loss. The sectors of the U.S. economy that produce AI technologies have also historically exhibited high volatility in productivity. We then quantify how technology-led structural changes in economic activities contribute to aggregate business cycle volatility. Growth in the production of AI-based technologies in recent years increased the volatility of U.S. output by 2.8 percent, roughly 3.5 times what resulted from the late 1990s’ IT boom. If the orientation of AI toward occupations that exhibit higher variability in labor market outcomes results in a higher aggregate labor supply elasticity, the effects on aggregate volatility are even greater.

Suggested Citation

  • Juan David Munoz Henao & Nicholas Sly, 2026. "Is the AI Boom Volatility-Biased Technological Change?," Research Working Paper RWP 26-06, Federal Reserve Bank of Kansas City.
    • Handle: RePEc:fip:fedkrw:103640
    DOI: 10.18651/RWP2026-06
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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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