The Unproven Promise of AI
According to the Federal Reserve’s February Beige Book, businesses are integrating AI to augment output rather than replace jobs. It is tempting to link recent GDP growth, which has diverged from a softening labor market, to productivity gains from AI. Yet despite sensational headlines, AI’s real-world business impact remains limited. And the most important question may not be how AI affects productivity, but who benefits if and when it does.
Labor Productivity Decreased in 2023 Q1 While Labor Costs Remained High
Nonfarm business sector labor productivity—measured as output produced per hour worked—decreased 2.7% in the first quarter of 2023 as output increased by 0.2% and hours worked increased by 3.0%.
Labor Productivity Improved for Two Consecutive Quarters
Nonfarm business sector labor productivity—measured as output produced per hour worked—increased 3% in the last quarter of 2022 as output increased by 3.5% and hours worked increased by 0.5%.