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Artificial Intelligence and Technological Unemployment

Author

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  • Ping Wang
  • Russell Wong

Abstract

How large are the effects of artificial intelligence (AI) on labor productivity and unemployment? We develop a labor-search model of technological unemployment where AI learns from workers, raises productivity, and displaces them if renegotiation fails. The model admits three steady states: no AI; some AI with limited capability, more job creation but higher unemployment; unbounded AI with endogenous growth and employment gains. Calibrated to U.S. data, the model implies a threefold productivity gain but a 23% employment loss, half within five years. Plausible parameters give rise to global and local indeterminacy with endogenous cycles in productivity and unemployment, underscoring the uncertainty of AI's impacts in line with a wide range of empirical findings. Equilibria are inefficient despite the Hosios condition; subsidizing jobs at risk of AI displacement is constrained optimal.

Suggested Citation

  • Ping Wang & Russell Wong, 2026. "Artificial Intelligence and Technological Unemployment," Working Paper 26-01, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:102794
    DOI: 10.21144/wp26-01
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    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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