Fast-embraced AI will be slow to lift productivity

Nonfarm U.S. labor productivity increased 2.2% in the second quarter from a year earlier, the Bureau of Labor Statistics said on September 3. Unit labor costs grew 1.2%, reflecting a 2.6% rise in hourly compensation and a 1.4% increase in productivity. Dario Amodei, CEO of AI developer Anthropic, on September 12 argued for a slowdown in the development of artificial intelligence, joining a growing number of executives and politicians raising concerns about potential threats from the technology. Perhaps services are equally improved by today's thinking machines and the statistics can’t distinguish it, thus overstating inflation. Even so, beyond the legal services consumer price index, which the U.S. Bureau of Labor Statistics stopped publishing because of its unreliability, there are few suspicious jumps in price growth. Even in wholesale trade and finance, where AI adoption exceeds 60%, inflation is consistent with worldwide trends. It’s more likely the numbers are roughly correct, and the AI era will be nothing like its internet counterpart, when PCs already sat on every desk. To use LLMs, businesses are retraining employees and hiring consultants, Federal Reserve surveys show. Such costs probably help explain why output and employment gains for AI users have been hard to spot. The investment splurge is nevertheless a direct boon for developers, even as concerns about potential threats prompt a movement to throttle chatbot advancements. Such fears may be overblown, but either way the broad societal payoffs will take time to show up. The rate surpasses the 1.5% of the 1980s. But during the latter part of the 1990s, huge capital expenditure contributed to a 2.7% productivity leap, with quarterly rates that sometimes exceeded 4%. Then, slowing inflation underpinned consumption. Today, wars and supply-chain snags are eroding real incomes. It's possible statisticians are understating the value U.S. AI giants capture from the huge spending on data centers when products designed in America are manufactured and sold overseas, as with Nvidia NVDA.O chips made in Taiwan and shipped to Europe. Annual GDP measurements could fall short by as much as two percentage points by 2028, research institute Epoch AI estimated last month. More generally, data often struggles to reflect upgrades in quality from technology. The baffling lack of a productivity windfall from early investments in the 1980s, famously noted by Nobel laureate Robert Solow, prompted "hedonic adjustments." These mechanically boosted 1990s output and reduced inflation as dollars went further in real terms. Most of the spending surge then reflected computers getting 40% faster annually, rather than companies buying more hardware. A single contract clause that would have taken a lawyer hours to research three years ago can now be done by a specialized large-language model in minutes. Although such AI-powered time savings repeat millions of times daily in offices and factories, they cannot be found in productivity statistics. It suggests the latest technological revolution will echo the 1980s more than the 1990s. Corporate America is adopting artificial intelligence at three times the pace it did personal computers some four decades ago. About 44% of workplaces were using AI in May, according to a tracker supported by Harvard Business School. It isn't translating into observable labor efficiency, however, and industry executives are now calling for a slowdown in developing the technology. Hourly U.S. output expanded at an annual 2.2% pace in the second quarter.

Fast-embraced AI will be slow to lift productivity

Context news

AI's business costs may be delaying visible gains

Productivity statistics may be missing some of AI's value

AI adoption is rapid, but productivity gains are still hard to see

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