I think itâs important to explore the potential impacts of TAI on low and middle income countries (LMICs), and there has been very little done, so thanks for doing this. I agree with most of what you say.
Countries that rely heavily on remittances (e.g. Latin America and the Pacific) will also lose out. In a way, remittances can be seen as payment for âexportsâ of in-person services like construction or domestic work. Even if these jobs donât get automated away, I expect competition for them will get fiercer as people who donât hold capital run out of other ways to make money. (This risk may be mitigated if those richer countries manage their domestic inequality pressures well.)
That could be true in the later stages of TAI with robotics, but in the earlier stages, I think that it will be more knowledge worker jobs that will be automated, and the demand for manual labor will increase dramatically, because the people making a lot of money from AI will want bigger houses, more roads, and more physical goods in general. Yes, there will be some unemployed knowledge workers who may want a manual job, but those who had some investments will likely be very rich. Also, in this scenario, government revenue would be large because they would be taxing the high wages of manual workers, and taxing massive corporate/âcapital gains. Some of the production of goods will be done in the HICs (perhaps increasing remittances), but I think a lot will be done in LMICs, which would a boon for those countries.
However, poor countries can be worse off even if the overall pie is growing if the rich countriesâ increased wealth makes it harder for poor countries to compete for a scarce supply of globally traded goods, such as food, energy, raw materials, minerals, etc.
I think prices of those commodities would increase, but I think the worker wages would increase even more.
TAI is likely to make immigration much more restrictive, at least in the near term. While this is already happening for various reasons, I expect TAI will accelerate these trends as the arguments for allowing in workers who are able and willing to do the jobs that locals canât or wonât will disappear. This will close off an important development pathway.
Again, I agree once you get huge amount of robotics, but in the first part of TAI, I think demand for physical workers in HICs will skyrocket, so they will want more immigration.
Thanks for the feedback and you raise some interesting points.
the demand for manual labor will increase dramatically, because the people making a lot of money from AI will want bigger houses, more roads, and more physical goods in general
Iâm not sure about this. I think we have different intuitions on how broad the class of âpeople making a lot of money from AIâ vs how broad the class of knowledge workers losing out from TAI. My sense is that the former will be smaller than the latter, just based on data Iâve seen showing how little most people in developed countries have saved for retirement in the form of financial assets like shares (i.e. I havenât researched this, and it likely depends on the country).
I guess this will also depend on the specific capabilities of TAI and how much labour it will displace.
I appreciate this challenge and it would be good to see some modelling on it (I might have a quick go at some stage).
Some of the production of goods will be done in the HICs (perhaps increasing remittances), but I think a lot will be done in LMICs, which would a boon for those countries.
Interesting point. Some of the goods you mention people getting rich from AI will want are bigger houses and roads. These are not globally traded so, to the extent TAI increases demand for construction work, I would expect this demand to increase in HICs rather than LMICs.
To the extent that people getting rich from AI want to increase their consumption, I expect much of that will be channelled through higher demand for in-person servicesâe.g. personal chef, gardener, masseusse, and (as you point out) construction.
Some increased consumption might also be channeled through physical goods, but physical goods are already incredibly cheap relative to incomes in HICs. The main bottlenecks to consumption are likely to be physical space (your house needs to be big enough for your toys) and leisure time. I expect TAI could remove the leisure time bottleneck for existing capitalholders, which could boost demand for leisure complements. But there is still only so much time in the day, and many higher-tech leisure goods like TVs, gaming rigs, bikes, cars, yachts donât rely much on LMIC labour anyway. (Some things like clothing and tents may be more exceptions.)
I do agree with you that some LMICs could see a boonâbut I donât expect this effect to be widespread across LMICs in general.
Also, in this scenario, government revenue would be large because they would be taxing the high wages of manual workers, and taxing massive corporate/âcapital gains.
I disagree with this because most governments tax labour more heavily than capital. So if all the income currently earned by labour just shifts to capital, all else equal tax revenues will decline. (At the same time government spending will likely have to increase to pay for increased unemployment. I go into this more here.)
If governments are able to shift their tax bases towards capital we might see tax revenues remain stable.[1] But there are major challenges to taxing capital: capital is mobile and more easily hidden, there are serious valuation issues when you try to tax unrealised gains[2], and it is distortionary because it is very hard to properly account for inflation. Plus there are a bunch of political challenges. All these challenges are why tax bases rely more heavily on labour to begin with.
Most countries tax realised gains instead, but this leads to undertaxation because taxpayers can choose when to realise those gains, which is usually only when they need to fund personal consumption. There are also tax avoidance opportunities and distortionary lock-in effects that crop up when taxpayers can choose when to realise their gainsâwhich is part of why capital is almost always taxed at flat rates rather than on a progressive schedule.
But there is still only so much time in the day, and many higher-tech leisure goods like TVs, gaming rigs, bikes, cars, yachts donât rely much on LMIC labour anyway. (Some things like clothing and tents may be more exceptions.)
I do agree with you that some LMICs could see a boonâbut I donât expect this effect to be widespread across LMICs in general.
AI agrees with you on cars and yachts, but says the majority of TVs, gaming rigs, and bikes consumed in HICs are made in LMICs. Overall, I think I agree with you that the new demand created by new wealthy people would initially probably increase demand for manual laborers in HICs more than LMICs. However, if labor is the bottleneck, I think there will be a large incentive to shift production of goods to LMICs. I think this would not just be consumer goods, but even housing in the case of prefabricated panels (it only costs a few cents per kilogram to ship something across an ocean). I think it would also apply for high tech goods because the AI could tell the workers exactly what to do even if they are not very skilled. But I agree that this wonât necessarily work out for all LMICs (conflict zones, those that restrict trade, etc).
If governments are able to shift their tax bases towards capital we might see tax revenues remain stable.
I think itâs best to discuss this in your other post, but for completeness, here is my comment from there:
Epoch estimates that wages will ~10x in the run up to full automation. Capital would rise much faster. If TAI is anything like this, governments wonât have to worry about revenue.
AI agrees with you on cars and yachts, but says the majority of TVs, gaming rigs, and bikes consumed in HICs are made in LMICs.
Fair enough. I think most of these are made in Asia and I do expect Asia (particularly China) to fare better than most other LMICs or developing countries.
I think itâs important to explore the potential impacts of TAI on low and middle income countries (LMICs), and there has been very little done, so thanks for doing this. I agree with most of what you say.
That could be true in the later stages of TAI with robotics, but in the earlier stages, I think that it will be more knowledge worker jobs that will be automated, and the demand for manual labor will increase dramatically, because the people making a lot of money from AI will want bigger houses, more roads, and more physical goods in general. Yes, there will be some unemployed knowledge workers who may want a manual job, but those who had some investments will likely be very rich. Also, in this scenario, government revenue would be large because they would be taxing the high wages of manual workers, and taxing massive corporate/âcapital gains. Some of the production of goods will be done in the HICs (perhaps increasing remittances), but I think a lot will be done in LMICs, which would a boon for those countries.
I think prices of those commodities would increase, but I think the worker wages would increase even more.
Again, I agree once you get huge amount of robotics, but in the first part of TAI, I think demand for physical workers in HICs will skyrocket, so they will want more immigration.
Thanks for the feedback and you raise some interesting points.
Iâm not sure about this. I think we have different intuitions on how broad the class of âpeople making a lot of money from AIâ vs how broad the class of knowledge workers losing out from TAI. My sense is that the former will be smaller than the latter, just based on data Iâve seen showing how little most people in developed countries have saved for retirement in the form of financial assets like shares (i.e. I havenât researched this, and it likely depends on the country).
I guess this will also depend on the specific capabilities of TAI and how much labour it will displace.
I appreciate this challenge and it would be good to see some modelling on it (I might have a quick go at some stage).
Interesting point. Some of the goods you mention people getting rich from AI will want are bigger houses and roads. These are not globally traded so, to the extent TAI increases demand for construction work, I would expect this demand to increase in HICs rather than LMICs.
To the extent that people getting rich from AI want to increase their consumption, I expect much of that will be channelled through higher demand for in-person servicesâe.g. personal chef, gardener, masseusse, and (as you point out) construction.
Some increased consumption might also be channeled through physical goods, but physical goods are already incredibly cheap relative to incomes in HICs. The main bottlenecks to consumption are likely to be physical space (your house needs to be big enough for your toys) and leisure time. I expect TAI could remove the leisure time bottleneck for existing capitalholders, which could boost demand for leisure complements. But there is still only so much time in the day, and many higher-tech leisure goods like TVs, gaming rigs, bikes, cars, yachts donât rely much on LMIC labour anyway. (Some things like clothing and tents may be more exceptions.)
I do agree with you that some LMICs could see a boonâbut I donât expect this effect to be widespread across LMICs in general.
I disagree with this because most governments tax labour more heavily than capital. So if all the income currently earned by labour just shifts to capital, all else equal tax revenues will decline. (At the same time government spending will likely have to increase to pay for increased unemployment. I go into this more here.)
If governments are able to shift their tax bases towards capital we might see tax revenues remain stable.[1] But there are major challenges to taxing capital: capital is mobile and more easily hidden, there are serious valuation issues when you try to tax unrealised gains[2], and it is distortionary because it is very hard to properly account for inflation. Plus there are a bunch of political challenges. All these challenges are why tax bases rely more heavily on labour to begin with.
I find it highly unlikely tax revenues would increase in the near term.
Most countries tax realised gains instead, but this leads to undertaxation because taxpayers can choose when to realise those gains, which is usually only when they need to fund personal consumption. There are also tax avoidance opportunities and distortionary lock-in effects that crop up when taxpayers can choose when to realise their gainsâwhich is part of why capital is almost always taxed at flat rates rather than on a progressive schedule.
AI agrees with you on cars and yachts, but says the majority of TVs, gaming rigs, and bikes consumed in HICs are made in LMICs. Overall, I think I agree with you that the new demand created by new wealthy people would initially probably increase demand for manual laborers in HICs more than LMICs. However, if labor is the bottleneck, I think there will be a large incentive to shift production of goods to LMICs. I think this would not just be consumer goods, but even housing in the case of prefabricated panels (it only costs a few cents per kilogram to ship something across an ocean). I think it would also apply for high tech goods because the AI could tell the workers exactly what to do even if they are not very skilled. But I agree that this wonât necessarily work out for all LMICs (conflict zones, those that restrict trade, etc).
I think itâs best to discuss this in your other post, but for completeness, here is my comment from there:
Epoch estimates that wages will ~10x in the run up to full automation. Capital would rise much faster. If TAI is anything like this, governments wonât have to worry about revenue.
Fair enough. I think most of these are made in Asia and I do expect Asia (particularly China) to fare better than most other LMICs or developing countries.