Introduction
The last decade has seen technological revolution and impressive advances in Artificial Intelligence (AI). While AI can boost productivity, elevate economic growth, and income around the world, it threatens the future of work across the skills spectrum and can deepen inequality in the labour market, particularly in emerging countries. The International Monetary Fund in 2024 reported that approximately 40% of global employment is exposed to AI.[1] In advanced economies, 60% of jobs may be impacted by AI because high income countries have a distinct advantage in capturing economic value through advanced digital infrastructure, abundant AI development resources, and advanced data systems.[2] For emerging markets and low-income countries, AI exposure is expected to be 40% and 26%, respectively.[3] This shows that AI can also threatens lower- skilled or less experienced workers.[4]
The rapid advancement of AI raises concerns about its impact on wages and on worker inequality. As AI capabilities expand, whilst surpassing human capacities in an array of tasks, the implications of its evolution has now become more important than ever. It is important for government to act, and set polices to mitigate against potential disruptive effects of AI. This blog highlights the importance of AI, its challenges and its impact on the labour market in developing countries. It also puts forward policy recommendations that can mitigate against AI effects on labour markets to sustain social and economic welfare.
Why is AI important
AI can transform the productivity and GDP potential of the global economy.[1] The advancement of AI is versatile and presents opportunities for the private and public sectors. AI visibility is widespread offering improved decision making, optimization and minimization of cost in terms of productivity with some sector benefiting more than others. Fundamentally, it is likely to boost the competitiveness of sectors such as manufacturing through efficiency and productivity gains,[2] given that many of their operational processes are highly susceptible to automation.[3] Government can also use AI as a vigorous tool to deliver a personalized service delivery experience, access to information, and strengthen policy compliance and aid in the identification of fraud.[4] AI has also been used as a tool to improve systems and support areas such as precision agriculture, medical diagnostics, teacher support and virtual tutoring, and efficient use of water and energy.[5] AI’s transformative power offers economies new leaps in terms of productivity and elevating growth.
What are the ripple effects of AI in the labour market
AI, is likely to boost productivity, elevate economic growth, and income around world. For example, AI’s gross and net effect on GDP and labour markets show that AI could add around 16% to global output by 2030, or about $13 trillion.[6] In spite of the fact that AI can boost labour productivity and elevate growth, it can also threaten jobs across the skills spectrum and deepen inequality in the labour market due to automation of tasks and roles in the labour market.
As more tasks and roles become exposed to AI, this may lead to lower labour demand, leading to lower wages, reduced hiring and decreased jobs for lower skilled workers and increasing jobs for high-skilled workers. In extreme cases, automation of tasks can result in displacement of certain skills which can completely become redundant. As such, AI could affect income and wealth inequality within countries.[7] However, the effect on labour income will largely depend on the extent to which AI will complement high-income workers. If AI significantly complements higher-income workers, it may lead to a disproportionate increase in their labour income. Moreover, gains in productivity from firms that adopt AI will likely boost capital returns, which may favour high earners. Both of these occurrences could widen the gap of inequality.[8]
Policy considerations
The foreseen integration of AI into business models around the world, requires policy makers to act, especially in developing countries. This is because AI is likely to worsen inequality, and the risk of job losses both in the public and private sectors will need to be managed. Government must pro-actively intervene and take action to mitigate and caution against disruptive effects of AI which may threaten socio-economic welfare and equality in developing countries. In particular government should strengthen policies around the following areas:
Implement policies that prioritise education and skill development for digitally competent workforce to manage the evolving landscape.
Equip emerging economies by investing in digital infrastructure and promoting access to digital infrastructure.
Strengthen human-capital and labour market policies to safeguard citizens from spill-over effects of AI.
Ensure adaptability to digital business models of the country’s legal framework
Strengthen governance and regulatory institutions for effective enforcement.
Develop robust frameworks to cultivate a safe and responsible AI environment, helping maintain public interest and supporting data protection and privacy.
Foster partnership locally as well as internationally to ensure universal access to the benefits of technological progress.
References
[1] PWC’s Global Artificial intelligence study: Exploiting the AI revolution.
[2] European Parliament briefing on economic impacts of artificial intelligences. Accessed at:
[3] PWC’s Global Artificial intelligence study: Exploiting the AI revolution. https://www.europarl.europa.eu/RegData/etudes/BRIE/2019/637967/EPRS_BRI(2019)637967_EN.pdf on 05 February 2025
[4] World Bank Report supported by the GovTech Global partnership. Accessed at: https://documents1.worldbank.org/curated/en/746721616045333426/pdf/Artificial-Intelligence-in-the-Public-Sector-Summary-Note.pdf on 04 February 2024.
[5] The World bank (2024). Developing AI for development. Accessed at: https://accountability.worldbank.org/en/news/2024/Developing-AI-for-development on 05 February 2025.
[6] McKinsey Global Institution (2018). Notes from the AI Frontier modelling the impact of AI on the world economy.
[7] IMF Blog. Accessed at: AI Will Transform the Global Economy. Let’s Make Sure It Benefits Humanity. On 28 January 2024
[8] OECD report on the impact of artificial intelligence on productivity, distribution and growth – key mechanisms, initial evidence and policy challenges, Published April 2024 No.15.
Author's bio
Balisa Mhambi is an African development enthusiast with extensive research expertise and experience in public policy and regulation in Competition Law & Policy, Financial Inclusion, Behavioural Economics, and Economic Development. She is a Competition Analyst with the National Energy Regulator of South Africa (NERSA). She holds an MCom degree in Economics and she is currently enrolled for a PhD in Economics.
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