Artificial Intelligence and the Evolving Labor Market: A Comprehensive Review and Policy Roadmap

Abstract

The proliferation of artificial intelligence (AI) represents a transformative inflection point for global labor markets, distinguished from previous technological revolutions by its capacity to automate complex, non-routine tasks traditionally reserved for high-skilled professionals.¹ This report synthesizes findings from a vast body of academic and industry research to provide a data-driven analysis of AI's multifaceted impact. From a macroeconomic perspective, AI's full economic benefits have yet to be realized, with current empirical data showing minimal aggregate effects on employment and wages.⁶ This apparent discrepancy is largely due to the nascent stage of AI adoption, which is currently hindered by organizational and data-related bottlenecks.⁸ The true impact of AI is best observed at the micro-level, where its dual nature as both an automating and an augmenting force is reshaping the fundamental composition of work. A critical finding is that AI’s exposure is highest among occupations in the 80th earnings percentile, challenging the historical precedent of technology primarily displacing low-skilled labor.⁴ In fact, AI assistance disproportionately benefits low-skilled and novice workers, helping to compress wage scales within a profession.⁹ However, a countervailing force is at play, as workers with "AI capital" are commanding significant wage premiums, potentially widening the gap between those who adapt and those who do not.¹² Notably, the most pronounced employment declines have been observed among early-career workers in high-exposure occupations, suggesting that AI is displacing the entry-level work that serves as a training ground for new professionals.¹⁴ This analysis concludes with a policy roadmap to ensure a worker-centric AI economy, with recommendations centered on improving data and measurement, modernizing education and workforce development, strengthening social safety nets, and implementing targeted interventions to address geographic and demographic inequalities.