Transcript generated automatically by AI and may contain errors.
Chapter 1: What is the main topic discussed in this episode?
Fresh biscuits.
Chapter 2: Will AI decrease wages?
Okay, welcome back to Gary's Economics.
Chapter 3: Will AI increase wages?
This week we are going to explain whether AI will drive wages up or down.
Chapter 4: What lessons can we learn from the Luddites?
Okay, so this is a question which I keep getting asked.
Chapter 5: How did the Industrial Revolution change the economy?
So fans of the channel will know I was on tour in Australia and New Zealand about a month ago.
Chapter 6: Who profited from the Industrial Revolution?
And every single tour that I went, I got asked, what say I gonna do to the economy, to inequality, to wages?
Chapter 7: How did workers become powerful during the Industrial Revolution?
And I was hesitant to do a video on it because initially it seemed so obvious to me that AI was going to displace jobs and drive wages down.
Chapter 8: Why do customers matter in economic discussions?
But the more I sat and read about it and thought about it and talked about it, the more I realized that this answer is not so unbelievably obvious as I initially thought. So there are a lot of people putting out the idea that AI might actually drive wages up. I've got a couple of quotes here.
There's an article in Fox Business saying AI is gonna drive, substantially reduce wage inequality and drive up wages for low wage workers. Fortune magazine has a piece here from the IMF, the International Monetary Fund, saying that it's going to raise lower paid wages. I was reading The Economist this week and they strongly implied that there's no evidence that AI is displacing jobs.
So I saw that a lot of people seem to think or at least saying they think AI will not drive wages down. And it's got me thinking about how economists think about technology and wages. So when we start thinking about what is the level of wages as we are taught in our economics degrees, first thing to say is most economists really don't study this much at all.
There is a field of economics called labour economics, which talks about how the economy affects workers. It does include sections on what determines the wage level, but this is basically an optional field of study. I didn't do it until my master's degree, so I didn't do any labour economics up until my fifth year of economics.
And even then, we actually didn't do much about the relationship really between wages and technology or wages and the distribution. Until you get into that sort of advanced level economics, you will be basically given one idea about wages, which is that wages are driven by what economists call marginal productivity.
So this idea that wages are driven by marginal productivity is just a very simple idea, which is that if hiring one new worker
will get me £100 of new products, say I'm making biscuits, one new worker can make £100 of biscuits a day, then I had better pay that worker something close to £100, otherwise some other business owner, some other capitalist is going to snatch up that worker and he's going to pay them £100 and he's going to make the profit from it.
And this idea, which is taught to basically everybody who studies economics from a young age, from your first year, basically implies that wages are quite closely connected to worker productivity. And if we view AI from this perspective, this would strongly imply that AI should drive wages up for the very simple and obvious reason that AI is an improvement, whether you like it or not.
I don't love it. It is an improvement on previously existing tools. Most of us are using it quite frequently now. I use it pretty much every day when I'm doing my research.
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