Artificial Intelligence: Implications for Growth, Jobs & Productivity

It has been argued that AI could usher in "10x of the Industrial Revolution at 10x the speed." Yet, for AI to deliver on its growth potential for the economy, not just for a select group of companies, it needs to create jobs, lots of them- to generate worker income and spur consumption growth. So far, the records for growth, jobs, and productivity are unimpressive; however, to be fair, they are far from the final scorecard.

In the first half of 2026, even with double-digit annualized gains in business spending on technology equipment and intellectual property (AI), the economy saw an annual growth rate of 1.75%, with real consumer spending rising by 1.8%, the creation of 450,000 payroll jobs, and productivity growth of about 1%. Various factors impacted that growth and job performance, with AI emerging as the most significant influence.

AI is reportedly already managing or assisting with large volumes of white-collar tasks, allowing some companies to reduce their headcount. But the future impact could be more significant in scale and breadth. AI is designed to perform tasks traditionally done by humans, whereas the Industrial Revolution was a massive job creator.

Predicting the impact of AI on the total number of employed individuals is challenging. Nonetheless, if AI enables companies to downsize their workforce or eliminates the necessity to expand it, this could significantly harm overall economic performance.

This isn't a pessimistic view; it's simply basic arithmetic. Real consumer spending accounts for 70% of overall GDP growth (add another 3% for housing), while all types of business investment spending are less than 15%. If real consumer spending decreases by 100 basis points due to sluggish job growth, investments in AI models and infrastructure would need to increase by 3X or 4X above the current rate to maintain the same GDP growth rate.

Is it possible? A surge in AI investment of this magnitude would far exceed most companies' current cash flows, requiring unprecedented borrowing from the private sector. Yet, then the real question with AI is whether such an investment is essential, considering AI might impede the growth of its main market, the consumer, due to stagnant job growth.

It's crucial to find a balance where AI enhances GDP output and productivity without adversely affecting the job market to the point where consumer spending significantly decreases. However, it's uncertain where such a trade-off exists.

These issues will not be settled today, next month, or even next year. Historically, infrastructure booms and new technologies take years before their economic and financial benefits become evident. Nonetheless, all past innovations have ultimately created more jobs than they eliminated. For AI to be truly successful, it must create more jobs than it removes, and the responsibility to prove this lies with AI.