The Changing Landscape of Work: AI’s Potential Impact on Jobs and the Economy

As artificial intelligence continues to evolve, policymakers and economists are increasingly focused on how these advances—especially in generative AI—may reshape the labor market and the broader economy.

Currently, the U.S. economy remains on solid footing, with low unemployment and a gradual, if uneven, path back toward a 2 percent inflation target. Yet recent trade policies and tariff increases have created uncertainty, posing risks of higher inflation and potentially slower growth both domestically and abroad. This new economic environment coincides with the rapid integration of advanced AI technologies into business operations and everyday life, prompting questions about how workforce dynamics will change in the years ahead.

Two possible scenarios emerge for how AI might affect employment. In one, the adoption of AI is gradual and incremental, automating some tasks while empowering workers to focus on higher-value activities. Productivity gains could lead to plentiful jobs, higher real wages, and gradual transitions, with time for retraining and adaptation. However, the spread of AI could also heighten income inequality, as digitally skilled workers and capital owners stand to benefit most.

In the other scenario, AI proves truly transformative, automating a broad spectrum of jobs and redefining the very structure of the labor market. While this could unleash dramatic advances in productivity, health, and living standards, it also introduces the risk that traditional employment becomes far less central to economic life. Some jobs—particularly those requiring human interaction or physical dexterity—would persist, but many roles could be displaced by machines. The transition could be difficult, with challenges around skill mismatches, sustained unemployment, and navigating new forms of inequality as economic gains concentrate among those best positioned to leverage AI.

Distinguishing between these potential futures will depend on real-time tracking of business adoption of AI, monitoring the evolution of AI capabilities, and watching shifts in job openings and labor market statistics. Policymakers must be vigilant, adjusting educational, regulatory, and social frameworks to ensure that changes ultimately benefit society as a whole and that economic gains are widely shared. For central bankers, a rapidly changing labor market may require new approaches to measuring full employment and setting interest rates, as the natural rate of unemployment and neutral interest rate could shift amid technological upheaval.

The expansion of AI technology represents a pivotal juncture for economic growth and the nature of work. The extent and pace of AI’s impact remain uncertain, but its influence on productivity, employment, and social structure is poised to be significant for years to come.