This chapter assesses the correlation between AI expansion and its influence on diverse economic factors like labor supply, wage rates, and working hours. In the subsequent segment, the authors explore the connection between the utility function and the derived hours equation. Unlike the direct utility indicators of leisure and consumption, indirect utility functions are represented through income/wage rates or prices. These models and diagrams are developed by the authors to illustrate the correlation between income/consumption and its association with the balance between working hours and leisure hours. This chapter encompasses diverse models predicated on specific assumptions, contingent on market demand and supply scenarios.
TopIntroduction
Throughout centuries and decades, humanity has borne witness to numerous revolutions that have brought both remarkable progress and advancements to our world. Each industrial revolution has presented solutions to existing challenges while simultaneously giving rise to new concerns. With three industrial revolutions behind us and a fourth underway, the forthcoming industrial revolution is poised to leverage information and communication technologies across various sectors. This includes domains like 'Artificial Intelligence,' 'Automation,' 'Digitalization,' and 'Machine Learning.'
Artificial intelligence involves computers and machines replicating processed human intelligence. However, this growth in production and output has been accompanied by issues like unemployment, job displacement, market shifts, and price fluctuations. This analysis aims to investigate how the expansion of AI relates to different economic variables such as labor supply, wage rates, and working hours.
Historically, skepticism has surrounded the impact of technological change on labor demand. This skepticism dates back to Plato's Phaedrus (Frank et al., 2019, 2), which discussed how writing could supplant human memory. Similarly, during the industrial revolution, there was apprehension about machines replacing jobs. In the current context of the fourth industrial revolution, there's a hypothesis that AI and robots might lead to job displacement. Research suggests that while AI might initially bring about creative destruction, over time it could generate more employment opportunities.
Theoretical Models
This chapter assesses the correlation between AI expansion and its influence on diverse economic factors like labor supply, wage rates and working hours. In the subsequent segment, we explore the connection between the utility function and the derived hours equation. Unlike the direct utility indicators of leisure and consumption, indirect utility functions are represented through income/wage rates or prices.
These models and diagrams are developed by author to illustrate the correlation between income/consumption and its association with the balance between working hours and leisure hours (Koutsoyiannis, 1979). This will also reveal its influence on the labor supply (L) and wage rates. The variables dependent on the outcome are wage rates (W), Artificial Intelligence (A*), where AI functions as a curve-shifting factor. Other factors encompass working hours (WHr), leisure (LE), unemployment, output (Y), capital (K), and productivity. In figures 2 and 3, the X-axis represents leisure hours, while the Y-axis signifies consumption or income. The premise is that consumption equates to income. AE and BE symbolize budget constraints. U1 and U2 depict indifference curves that reflect similar levels of satisfaction, rendering individuals indifferent to specific combinations of working hours, leisure hours, and monetary income. P and R denote points of intersection with the budget constraints. This chapter encompasses diverse models predicated on specific assumptions, contingent on market demand and supply scenarios.
Impact Of Changes In Income/Wage Rate On Working Hours And Leisure
Suppose an individual's utility function is denoted as U(C, L). In this case, utility is quantified in terms of dollars/rupee (a standardized unit) that a consumer allocates to consumption, while “L” represents the chosen leisure time. Alongside, one accounts for alternative sources of income labeled as “V,” given a designated time frame “T” in hours. The vertical axis represents consumption, while the horizontal axis represents leisure hours ranging from 0 to 110 (right to left), and work hours ranging from 0 to 48 (left to right) are plotted. This approach is in line with the framework proposed by Krueger & Meyer (n.d.). As per the equation, an individual's wage rate hinges on both the hours worked and any supplementary income sources. The individual's budget constraint can be formulated as follows:
C= wh+ VC= w(T-L)+ V