Labour in The Ai Era: Crisis or Catalyst? (2024-25) | Indian Economy for UPSC CSE PDF Download

 Page 1


13
CHAPTER
411
LABOUR IN THE AI ERA: 
CRISIS OR CATALYST?
The rapid advancement of artificial intelligence (AI) presents both unprecedented 
opportunities and significant challenges for labor markets worldwide. In 
this context, as policymakers, it is important to pay attention to the evolving 
technological landscape and the potential impact it can have on the labour 
market. Historical parallels with earlier technological revolutions reveal the 
critical role of inclusive institutions in managing disruption and ensuring 
equitable outcomes.
Barriers to large-scale AI adoption persist in the present, which include 
concerns over reliability, resource inefficiencies, and infrastructure deficits. 
These challenges, along with AI’s experimental nature, create a window for 
policymakers to act. India’s demographic advantage and diverse economic 
landscape position it uniquely to benefit from AI. However, achieving these 
benefits requires significant investments in education and workforce skilling, 
supported by enabling, insuring, and stewarding institutions. These mechanisms 
can help workers adapt to changing demands while providing essential safety nets.
By fostering collaboration between policymakers, the private sector, and 
academia, India can align AI-driven innovation with societal goals. Ensuring 
inclusivity and sustainability in this transition is key to maximizing benefits while 
minimizing disruptions. With robust institutional frameworks and strategic 
planning, AI can serve not as a crisis but as a catalyst for equitable economic 
transformation, positioning India to thrive in an increasingly automated world.
INTRODUCTION
13.1 Concerns and fears about Artificial Intelligence (AI) disrupting labour markets have 
intensified as developments in the field have continually demonstrated rapid progress 
over the last four years. The increasing complexity of the models being developed 
today represent a paradigm shift in the field of AI, showing the world that in a few 
years, ‘intelligent machines’ will be capable of performing tasks that are predominantly 
handled by humans today. The founder of the AI research and deployment company 
OpenAI recently stated in a blog post how they are expecting to have office ready ‘AI 
workers’ by the end of 2025
1
. 
1  Reflections by Sam Altman. 6th January 2025, https://tinyurl.com/59t77hv4
Page 2


13
CHAPTER
411
LABOUR IN THE AI ERA: 
CRISIS OR CATALYST?
The rapid advancement of artificial intelligence (AI) presents both unprecedented 
opportunities and significant challenges for labor markets worldwide. In 
this context, as policymakers, it is important to pay attention to the evolving 
technological landscape and the potential impact it can have on the labour 
market. Historical parallels with earlier technological revolutions reveal the 
critical role of inclusive institutions in managing disruption and ensuring 
equitable outcomes.
Barriers to large-scale AI adoption persist in the present, which include 
concerns over reliability, resource inefficiencies, and infrastructure deficits. 
These challenges, along with AI’s experimental nature, create a window for 
policymakers to act. India’s demographic advantage and diverse economic 
landscape position it uniquely to benefit from AI. However, achieving these 
benefits requires significant investments in education and workforce skilling, 
supported by enabling, insuring, and stewarding institutions. These mechanisms 
can help workers adapt to changing demands while providing essential safety nets.
By fostering collaboration between policymakers, the private sector, and 
academia, India can align AI-driven innovation with societal goals. Ensuring 
inclusivity and sustainability in this transition is key to maximizing benefits while 
minimizing disruptions. With robust institutional frameworks and strategic 
planning, AI can serve not as a crisis but as a catalyst for equitable economic 
transformation, positioning India to thrive in an increasingly automated world.
INTRODUCTION
13.1 Concerns and fears about Artificial Intelligence (AI) disrupting labour markets have 
intensified as developments in the field have continually demonstrated rapid progress 
over the last four years. The increasing complexity of the models being developed 
today represent a paradigm shift in the field of AI, showing the world that in a few 
years, ‘intelligent machines’ will be capable of performing tasks that are predominantly 
handled by humans today. The founder of the AI research and deployment company 
OpenAI recently stated in a blog post how they are expecting to have office ready ‘AI 
workers’ by the end of 2025
1
. 
1  Reflections by Sam Altman. 6th January 2025, https://tinyurl.com/59t77hv4
Economic Survey 2024-25
412
13.2 Expectations point toward a trend where AI begins outperforming humans in 
critical decision-making processes in areas like healthcare, criminal justice, education, 
business and financial services among others. Adding to the uncertainties of tomorrow 
is the fact that the speed of research and development is outpacing the regulatory and 
ethical frameworks needed to manage its risks. Further, with executives optimistic 
about the capabilities of AI
2
 and the cost-saving potential they expect it to possess, the 
impact of AI on the labour market, particularly entry-level jobs is turning into a point 
of concern for policymakers. This economic displacement adds to a broader sense of 
unease about whether AI will exacerbate existing social and economic divides. 
13.3 With AI research and development currently concentrated in the hands of a few, 
very large companies that control the resources to erect high entry barriers, AI adoption 
in place of humans presents the risk of concentrating the benefits of automation. Korinek 
and Stiglitz (2021) warn that labour- and resource-saving automation could produce a 
‘winner-takes-all’ approach to the detriment of developing countries who are labour- 
and resource-rich
3
. Technological developments that worsen inequality can erode 
any possible benefit that the innovation brings, leaving the public sector responsible 
for addressing the cost of the transition. This has led to calls for a more responsible 
approach to AI adoption
4
, especially in a country like India where employment numbers 
make the magnitude of impact something worth paying attention to. 
13.4 Although until this point, the use of AI/Machine Learning (ML)
5
 enabled tools 
and applications were already widespread and part of productivity suites for years, 
the end-user’s facetime with the integrated ‘AI’ features was essentially minimal and 
unconscious. Examples include the autocomplete function on a smartphone keyboard, 
Google’s and Apple’s smartphone virtual assistants, personalised recommendations 
on e-commerce platforms and media streaming services, and curated feeds on social 
media sites, among many others. Most users never paid much attention to the host of 
ML-powered features while enjoying the convenience they delivered. This changed in 
light of the developments witnessed in the last four years. The perceptions about AI has 
now drastically shifted, spurring debates about the need to align AI developments with 
broader societal goals. 
13.5 OpenAI has initiated an ‘arms race’ in AI as between 2022 and 2024, many 
companies, including big tech firms, have scrambled to capitalise on the demand for AI. 
2  2024 Gartner CEO and Senior Business Executive Survey. Gartner. 27th June 2024, https://tinyurl.com/yez68sp8
3  Korinek, Anton and Joseph E Stiglitz (2021). Artificial Intelligence, Globalization, and Strategies for Economic 
Development. Working Paper 28453. National Bureau of Economic Research, https://tinyurl.com/2vvxkwdx
4  A letter jointly written by Dr. Rajiv Kumar (former Vice Chairman of NITI Aayog), Sridhar Vembu (CEO, Zoho 
Corporation) & Sharad Sharma (Co-founder of the iSPIRT Foundation) highlights their concerns. 
5  While Artificial Intelligence is used to describe the ability of a machine to mimic human intelligence, machine 
learning is a subset of AI that allows machines to learn from data and improve without being explicitly programmed.
Page 3


13
CHAPTER
411
LABOUR IN THE AI ERA: 
CRISIS OR CATALYST?
The rapid advancement of artificial intelligence (AI) presents both unprecedented 
opportunities and significant challenges for labor markets worldwide. In 
this context, as policymakers, it is important to pay attention to the evolving 
technological landscape and the potential impact it can have on the labour 
market. Historical parallels with earlier technological revolutions reveal the 
critical role of inclusive institutions in managing disruption and ensuring 
equitable outcomes.
Barriers to large-scale AI adoption persist in the present, which include 
concerns over reliability, resource inefficiencies, and infrastructure deficits. 
These challenges, along with AI’s experimental nature, create a window for 
policymakers to act. India’s demographic advantage and diverse economic 
landscape position it uniquely to benefit from AI. However, achieving these 
benefits requires significant investments in education and workforce skilling, 
supported by enabling, insuring, and stewarding institutions. These mechanisms 
can help workers adapt to changing demands while providing essential safety nets.
By fostering collaboration between policymakers, the private sector, and 
academia, India can align AI-driven innovation with societal goals. Ensuring 
inclusivity and sustainability in this transition is key to maximizing benefits while 
minimizing disruptions. With robust institutional frameworks and strategic 
planning, AI can serve not as a crisis but as a catalyst for equitable economic 
transformation, positioning India to thrive in an increasingly automated world.
INTRODUCTION
13.1 Concerns and fears about Artificial Intelligence (AI) disrupting labour markets have 
intensified as developments in the field have continually demonstrated rapid progress 
over the last four years. The increasing complexity of the models being developed 
today represent a paradigm shift in the field of AI, showing the world that in a few 
years, ‘intelligent machines’ will be capable of performing tasks that are predominantly 
handled by humans today. The founder of the AI research and deployment company 
OpenAI recently stated in a blog post how they are expecting to have office ready ‘AI 
workers’ by the end of 2025
1
. 
1  Reflections by Sam Altman. 6th January 2025, https://tinyurl.com/59t77hv4
Economic Survey 2024-25
412
13.2 Expectations point toward a trend where AI begins outperforming humans in 
critical decision-making processes in areas like healthcare, criminal justice, education, 
business and financial services among others. Adding to the uncertainties of tomorrow 
is the fact that the speed of research and development is outpacing the regulatory and 
ethical frameworks needed to manage its risks. Further, with executives optimistic 
about the capabilities of AI
2
 and the cost-saving potential they expect it to possess, the 
impact of AI on the labour market, particularly entry-level jobs is turning into a point 
of concern for policymakers. This economic displacement adds to a broader sense of 
unease about whether AI will exacerbate existing social and economic divides. 
13.3 With AI research and development currently concentrated in the hands of a few, 
very large companies that control the resources to erect high entry barriers, AI adoption 
in place of humans presents the risk of concentrating the benefits of automation. Korinek 
and Stiglitz (2021) warn that labour- and resource-saving automation could produce a 
‘winner-takes-all’ approach to the detriment of developing countries who are labour- 
and resource-rich
3
. Technological developments that worsen inequality can erode 
any possible benefit that the innovation brings, leaving the public sector responsible 
for addressing the cost of the transition. This has led to calls for a more responsible 
approach to AI adoption
4
, especially in a country like India where employment numbers 
make the magnitude of impact something worth paying attention to. 
13.4 Although until this point, the use of AI/Machine Learning (ML)
5
 enabled tools 
and applications were already widespread and part of productivity suites for years, 
the end-user’s facetime with the integrated ‘AI’ features was essentially minimal and 
unconscious. Examples include the autocomplete function on a smartphone keyboard, 
Google’s and Apple’s smartphone virtual assistants, personalised recommendations 
on e-commerce platforms and media streaming services, and curated feeds on social 
media sites, among many others. Most users never paid much attention to the host of 
ML-powered features while enjoying the convenience they delivered. This changed in 
light of the developments witnessed in the last four years. The perceptions about AI has 
now drastically shifted, spurring debates about the need to align AI developments with 
broader societal goals. 
13.5 OpenAI has initiated an ‘arms race’ in AI as between 2022 and 2024, many 
companies, including big tech firms, have scrambled to capitalise on the demand for AI. 
2  2024 Gartner CEO and Senior Business Executive Survey. Gartner. 27th June 2024, https://tinyurl.com/yez68sp8
3  Korinek, Anton and Joseph E Stiglitz (2021). Artificial Intelligence, Globalization, and Strategies for Economic 
Development. Working Paper 28453. National Bureau of Economic Research, https://tinyurl.com/2vvxkwdx
4  A letter jointly written by Dr. Rajiv Kumar (former Vice Chairman of NITI Aayog), Sridhar Vembu (CEO, Zoho 
Corporation) & Sharad Sharma (Co-founder of the iSPIRT Foundation) highlights their concerns. 
5  While Artificial Intelligence is used to describe the ability of a machine to mimic human intelligence, machine 
learning is a subset of AI that allows machines to learn from data and improve without being explicitly programmed.
Labour in the AI Era
413
Examples include but are not limited to Google (Gemini), Microsoft (Co-Pilot), Meta 
(MetaAI with Llama), X/Twitter (Grok), Anthropic (Claude AI), Midjourney, Perplexity 
AI (Perplexity) and Stability AI (Stable Diffusion), among others. The number of AI 
patents granted globally increased 62.7 per cent to just over 62,000 between 2021 and 
2022
6
. Similarly, the annual global private investments in Generative AI surged from 
approximately USD 3 billion in 2022 to USD 25.2 billion by the end of 2023
7
. Between 
2021 and 2023, global corporate investments in all types of AI totalled USD 761 billion. 
Additionally, an increasing share of companies have been referencing AI in their earning 
calls lately
8
, with CEOs expecting AI adoption to lower labour requirements. 
13.6 If one were to look at these trends and the value generation expected from the 
investments, it would appear as if the ‘AI revolution’ is here and labour is soon going 
to be a thing of the past. Unease about what AI entails for workers and what it means 
for humanity as a whole has become part of daily discussions among academicians and 
policymakers, as reflected in many publications and reports. Making sense of these 
fears and anxieties would require a more in-depth breakdown of the short-term and 
long-term implications. Since there are many unknowns associated with AI at this 
point, looking at the present through the lens of previous technological revolutions may 
provide some insights into the way forward. Advancing the understanding about the 
challenges and opportunities that lie ahead is the purpose of this essay. 
13.7 In this regard Section 2 brings to light the adverse effects that emerged during 
previous technological revolutions and how they pertain to present-day concerns about 
Artificial Intelligence. The section also elaborates on the importance of remaining 
cognisant, as disruptions that are not carefully managed can lead to permanent societal 
damage for a country like India. Section 3 then goes on to discuss how these risks can be 
minimised through the creation of Social Infrastructure i.e., Institutions. The priority 
here is minimisation since the risks can never be fully mitigated. That is the price of 
innovation induced creative destruction. The various types of institutions detailed in 
this section can provide a much needed support system to ease the pains of a transition. 
13.8 However, building institutions is a time consuming process, requiring concerted 
effort from the public sector, the private sector and members of academia. In Section 
4, we put forward the hypothesis that India, at present, is afforded this time due to 
the challenging nature of scaling up technological adoption. Deployment at scale will 
require AI developers to address certain key challenges which requires a non-trivial 
6  Figure 1.2.1. Artificial Intelligence Index Report 2024, Stanford University, https://tinyurl.com/y4edef43
7  Ibid.
8  Aakash Kalyani, Serdar Ozkan, Mickenzie Bass and Mick Dueholm, "AI Optimism and Uncertainty: What Can 
Earnings Calls Tell Us Post-ChatGPT?," St. Louis Fed On the Economy, Sept. 30, 2024, https://tinyurl.com/
bdhnyyu7
Page 4


13
CHAPTER
411
LABOUR IN THE AI ERA: 
CRISIS OR CATALYST?
The rapid advancement of artificial intelligence (AI) presents both unprecedented 
opportunities and significant challenges for labor markets worldwide. In 
this context, as policymakers, it is important to pay attention to the evolving 
technological landscape and the potential impact it can have on the labour 
market. Historical parallels with earlier technological revolutions reveal the 
critical role of inclusive institutions in managing disruption and ensuring 
equitable outcomes.
Barriers to large-scale AI adoption persist in the present, which include 
concerns over reliability, resource inefficiencies, and infrastructure deficits. 
These challenges, along with AI’s experimental nature, create a window for 
policymakers to act. India’s demographic advantage and diverse economic 
landscape position it uniquely to benefit from AI. However, achieving these 
benefits requires significant investments in education and workforce skilling, 
supported by enabling, insuring, and stewarding institutions. These mechanisms 
can help workers adapt to changing demands while providing essential safety nets.
By fostering collaboration between policymakers, the private sector, and 
academia, India can align AI-driven innovation with societal goals. Ensuring 
inclusivity and sustainability in this transition is key to maximizing benefits while 
minimizing disruptions. With robust institutional frameworks and strategic 
planning, AI can serve not as a crisis but as a catalyst for equitable economic 
transformation, positioning India to thrive in an increasingly automated world.
INTRODUCTION
13.1 Concerns and fears about Artificial Intelligence (AI) disrupting labour markets have 
intensified as developments in the field have continually demonstrated rapid progress 
over the last four years. The increasing complexity of the models being developed 
today represent a paradigm shift in the field of AI, showing the world that in a few 
years, ‘intelligent machines’ will be capable of performing tasks that are predominantly 
handled by humans today. The founder of the AI research and deployment company 
OpenAI recently stated in a blog post how they are expecting to have office ready ‘AI 
workers’ by the end of 2025
1
. 
1  Reflections by Sam Altman. 6th January 2025, https://tinyurl.com/59t77hv4
Economic Survey 2024-25
412
13.2 Expectations point toward a trend where AI begins outperforming humans in 
critical decision-making processes in areas like healthcare, criminal justice, education, 
business and financial services among others. Adding to the uncertainties of tomorrow 
is the fact that the speed of research and development is outpacing the regulatory and 
ethical frameworks needed to manage its risks. Further, with executives optimistic 
about the capabilities of AI
2
 and the cost-saving potential they expect it to possess, the 
impact of AI on the labour market, particularly entry-level jobs is turning into a point 
of concern for policymakers. This economic displacement adds to a broader sense of 
unease about whether AI will exacerbate existing social and economic divides. 
13.3 With AI research and development currently concentrated in the hands of a few, 
very large companies that control the resources to erect high entry barriers, AI adoption 
in place of humans presents the risk of concentrating the benefits of automation. Korinek 
and Stiglitz (2021) warn that labour- and resource-saving automation could produce a 
‘winner-takes-all’ approach to the detriment of developing countries who are labour- 
and resource-rich
3
. Technological developments that worsen inequality can erode 
any possible benefit that the innovation brings, leaving the public sector responsible 
for addressing the cost of the transition. This has led to calls for a more responsible 
approach to AI adoption
4
, especially in a country like India where employment numbers 
make the magnitude of impact something worth paying attention to. 
13.4 Although until this point, the use of AI/Machine Learning (ML)
5
 enabled tools 
and applications were already widespread and part of productivity suites for years, 
the end-user’s facetime with the integrated ‘AI’ features was essentially minimal and 
unconscious. Examples include the autocomplete function on a smartphone keyboard, 
Google’s and Apple’s smartphone virtual assistants, personalised recommendations 
on e-commerce platforms and media streaming services, and curated feeds on social 
media sites, among many others. Most users never paid much attention to the host of 
ML-powered features while enjoying the convenience they delivered. This changed in 
light of the developments witnessed in the last four years. The perceptions about AI has 
now drastically shifted, spurring debates about the need to align AI developments with 
broader societal goals. 
13.5 OpenAI has initiated an ‘arms race’ in AI as between 2022 and 2024, many 
companies, including big tech firms, have scrambled to capitalise on the demand for AI. 
2  2024 Gartner CEO and Senior Business Executive Survey. Gartner. 27th June 2024, https://tinyurl.com/yez68sp8
3  Korinek, Anton and Joseph E Stiglitz (2021). Artificial Intelligence, Globalization, and Strategies for Economic 
Development. Working Paper 28453. National Bureau of Economic Research, https://tinyurl.com/2vvxkwdx
4  A letter jointly written by Dr. Rajiv Kumar (former Vice Chairman of NITI Aayog), Sridhar Vembu (CEO, Zoho 
Corporation) & Sharad Sharma (Co-founder of the iSPIRT Foundation) highlights their concerns. 
5  While Artificial Intelligence is used to describe the ability of a machine to mimic human intelligence, machine 
learning is a subset of AI that allows machines to learn from data and improve without being explicitly programmed.
Labour in the AI Era
413
Examples include but are not limited to Google (Gemini), Microsoft (Co-Pilot), Meta 
(MetaAI with Llama), X/Twitter (Grok), Anthropic (Claude AI), Midjourney, Perplexity 
AI (Perplexity) and Stability AI (Stable Diffusion), among others. The number of AI 
patents granted globally increased 62.7 per cent to just over 62,000 between 2021 and 
2022
6
. Similarly, the annual global private investments in Generative AI surged from 
approximately USD 3 billion in 2022 to USD 25.2 billion by the end of 2023
7
. Between 
2021 and 2023, global corporate investments in all types of AI totalled USD 761 billion. 
Additionally, an increasing share of companies have been referencing AI in their earning 
calls lately
8
, with CEOs expecting AI adoption to lower labour requirements. 
13.6 If one were to look at these trends and the value generation expected from the 
investments, it would appear as if the ‘AI revolution’ is here and labour is soon going 
to be a thing of the past. Unease about what AI entails for workers and what it means 
for humanity as a whole has become part of daily discussions among academicians and 
policymakers, as reflected in many publications and reports. Making sense of these 
fears and anxieties would require a more in-depth breakdown of the short-term and 
long-term implications. Since there are many unknowns associated with AI at this 
point, looking at the present through the lens of previous technological revolutions may 
provide some insights into the way forward. Advancing the understanding about the 
challenges and opportunities that lie ahead is the purpose of this essay. 
13.7 In this regard Section 2 brings to light the adverse effects that emerged during 
previous technological revolutions and how they pertain to present-day concerns about 
Artificial Intelligence. The section also elaborates on the importance of remaining 
cognisant, as disruptions that are not carefully managed can lead to permanent societal 
damage for a country like India. Section 3 then goes on to discuss how these risks can be 
minimised through the creation of Social Infrastructure i.e., Institutions. The priority 
here is minimisation since the risks can never be fully mitigated. That is the price of 
innovation induced creative destruction. The various types of institutions detailed in 
this section can provide a much needed support system to ease the pains of a transition. 
13.8 However, building institutions is a time consuming process, requiring concerted 
effort from the public sector, the private sector and members of academia. In Section 
4, we put forward the hypothesis that India, at present, is afforded this time due to 
the challenging nature of scaling up technological adoption. Deployment at scale will 
require AI developers to address certain key challenges which requires a non-trivial 
6  Figure 1.2.1. Artificial Intelligence Index Report 2024, Stanford University, https://tinyurl.com/y4edef43
7  Ibid.
8  Aakash Kalyani, Serdar Ozkan, Mickenzie Bass and Mick Dueholm, "AI Optimism and Uncertainty: What Can 
Earnings Calls Tell Us Post-ChatGPT?," St. Louis Fed On the Economy, Sept. 30, 2024, https://tinyurl.com/
bdhnyyu7
Economic Survey 2024-25
414
amount of time. Section 5 then outlines possible opportunities that AI may open up for 
India. It seeks to visualise a possible labour market evolution where the future of work 
is augmented by AI. Whether or not we go down this path will depend entirely on how 
robust our institutions are. Section 6 concludes the essay. 
REVOLUTIONS AND RIPPLES
13.9 The present discourse on AI from international organisations and social science 
researchers postulates that large scale labour market disruptions due to AI may 
materialise in the near-term. The International Monetary Fund states that AI poses risks 
of job displacements, notably for emerging markets and developing economies, which 
are not well placed to leverage the technology relative to the advanced economies
9
. The 
International Labour Organisation estimates that nearly 75 million jobs globally are at 
complete risk of automation due to AI
10
. Estimates for the UK show that 7 per cent of 
the existing UK jobs face a high risk of automation in the near term, rising to around 
18 per cent after 10 years
11
. Industry experts have told media outlets that ‘AI models 
could dramatically disrupt the labour market, including replacing routine jobs in some 
sectors.
12
’ A study by the Bank for International Settlements finds that 45 per cent of 
the jobs in the upper quartile of the wage distribution remain exposed to AI in the 
United States. If AI becomes highly capable, exposure increases across all quartiles of 
the income distribution
13
.
13.10 Estimates from private sector firms paint a similar picture. Goldman Sachs 
economists state that nearly 300 million full-time jobs remain exposed to AI-driven 
automation
14
. McKinsey estimates demonstrate how, by 2030, up to 30 per cent of 
current work hours could be automated by generative AI
15
 across Europe and the United 
States. They state that businesses will ‘need a major skill upgrade’ as the deployment 
of AI would raise the demand for social and emotional skills along with a need for 
9  Cazzaniga, M., Jaumotte, M. F., Li, L., Melina, M. G., Panton, A. J., Pizzinelli, C., ... & Tavares, M. M. M. (2024). Gen-
AI: Artificial intelligence and the future of work. International Monetary Fund, https://tinyurl.com/33hjum83
10   Minimizing the negative effects of AI-induced technological unemployment. Janine Berg. ILO. 9th October 2024, 
https://tinyurl.com/4f7thztd
11   Brione, P., Powell, A., Francis-Devine, B., Rough, E., Codd, F., & Buchanan, I. (2023). Potential impact of artificial 
intelligence on the labour market. House of Commons Library, https://tinyurl.com/jjj68k86
12   Will ChatGPT take your job – and millions of others? Published in Al Jazeera. 28th March 2023, https://tinyurl.
com/bdejbpxk
13   Auer, R., Köpfer, D., & Švéda, J. (2024). The Rise of Generative AI: Modelling Exposure, Substitution, and 
Inequality Effects on the US Labour Market. Substitution, and Inequality Effects on the Us Labour Market, 
https://tinyurl.com/3t6hekt4
14    Generative AI could raise global GDP by 7%. Goldman Sachs Research. 5th April 2023, https://tinyurl.
com/2vypxt3d
15   A new future of work: The race to deploy AI and raise skills in Europe and beyond. McKinsey Global Institute. 
21st May 2024, https://tinyurl.com/48tnydzu
Page 5


13
CHAPTER
411
LABOUR IN THE AI ERA: 
CRISIS OR CATALYST?
The rapid advancement of artificial intelligence (AI) presents both unprecedented 
opportunities and significant challenges for labor markets worldwide. In 
this context, as policymakers, it is important to pay attention to the evolving 
technological landscape and the potential impact it can have on the labour 
market. Historical parallels with earlier technological revolutions reveal the 
critical role of inclusive institutions in managing disruption and ensuring 
equitable outcomes.
Barriers to large-scale AI adoption persist in the present, which include 
concerns over reliability, resource inefficiencies, and infrastructure deficits. 
These challenges, along with AI’s experimental nature, create a window for 
policymakers to act. India’s demographic advantage and diverse economic 
landscape position it uniquely to benefit from AI. However, achieving these 
benefits requires significant investments in education and workforce skilling, 
supported by enabling, insuring, and stewarding institutions. These mechanisms 
can help workers adapt to changing demands while providing essential safety nets.
By fostering collaboration between policymakers, the private sector, and 
academia, India can align AI-driven innovation with societal goals. Ensuring 
inclusivity and sustainability in this transition is key to maximizing benefits while 
minimizing disruptions. With robust institutional frameworks and strategic 
planning, AI can serve not as a crisis but as a catalyst for equitable economic 
transformation, positioning India to thrive in an increasingly automated world.
INTRODUCTION
13.1 Concerns and fears about Artificial Intelligence (AI) disrupting labour markets have 
intensified as developments in the field have continually demonstrated rapid progress 
over the last four years. The increasing complexity of the models being developed 
today represent a paradigm shift in the field of AI, showing the world that in a few 
years, ‘intelligent machines’ will be capable of performing tasks that are predominantly 
handled by humans today. The founder of the AI research and deployment company 
OpenAI recently stated in a blog post how they are expecting to have office ready ‘AI 
workers’ by the end of 2025
1
. 
1  Reflections by Sam Altman. 6th January 2025, https://tinyurl.com/59t77hv4
Economic Survey 2024-25
412
13.2 Expectations point toward a trend where AI begins outperforming humans in 
critical decision-making processes in areas like healthcare, criminal justice, education, 
business and financial services among others. Adding to the uncertainties of tomorrow 
is the fact that the speed of research and development is outpacing the regulatory and 
ethical frameworks needed to manage its risks. Further, with executives optimistic 
about the capabilities of AI
2
 and the cost-saving potential they expect it to possess, the 
impact of AI on the labour market, particularly entry-level jobs is turning into a point 
of concern for policymakers. This economic displacement adds to a broader sense of 
unease about whether AI will exacerbate existing social and economic divides. 
13.3 With AI research and development currently concentrated in the hands of a few, 
very large companies that control the resources to erect high entry barriers, AI adoption 
in place of humans presents the risk of concentrating the benefits of automation. Korinek 
and Stiglitz (2021) warn that labour- and resource-saving automation could produce a 
‘winner-takes-all’ approach to the detriment of developing countries who are labour- 
and resource-rich
3
. Technological developments that worsen inequality can erode 
any possible benefit that the innovation brings, leaving the public sector responsible 
for addressing the cost of the transition. This has led to calls for a more responsible 
approach to AI adoption
4
, especially in a country like India where employment numbers 
make the magnitude of impact something worth paying attention to. 
13.4 Although until this point, the use of AI/Machine Learning (ML)
5
 enabled tools 
and applications were already widespread and part of productivity suites for years, 
the end-user’s facetime with the integrated ‘AI’ features was essentially minimal and 
unconscious. Examples include the autocomplete function on a smartphone keyboard, 
Google’s and Apple’s smartphone virtual assistants, personalised recommendations 
on e-commerce platforms and media streaming services, and curated feeds on social 
media sites, among many others. Most users never paid much attention to the host of 
ML-powered features while enjoying the convenience they delivered. This changed in 
light of the developments witnessed in the last four years. The perceptions about AI has 
now drastically shifted, spurring debates about the need to align AI developments with 
broader societal goals. 
13.5 OpenAI has initiated an ‘arms race’ in AI as between 2022 and 2024, many 
companies, including big tech firms, have scrambled to capitalise on the demand for AI. 
2  2024 Gartner CEO and Senior Business Executive Survey. Gartner. 27th June 2024, https://tinyurl.com/yez68sp8
3  Korinek, Anton and Joseph E Stiglitz (2021). Artificial Intelligence, Globalization, and Strategies for Economic 
Development. Working Paper 28453. National Bureau of Economic Research, https://tinyurl.com/2vvxkwdx
4  A letter jointly written by Dr. Rajiv Kumar (former Vice Chairman of NITI Aayog), Sridhar Vembu (CEO, Zoho 
Corporation) & Sharad Sharma (Co-founder of the iSPIRT Foundation) highlights their concerns. 
5  While Artificial Intelligence is used to describe the ability of a machine to mimic human intelligence, machine 
learning is a subset of AI that allows machines to learn from data and improve without being explicitly programmed.
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Examples include but are not limited to Google (Gemini), Microsoft (Co-Pilot), Meta 
(MetaAI with Llama), X/Twitter (Grok), Anthropic (Claude AI), Midjourney, Perplexity 
AI (Perplexity) and Stability AI (Stable Diffusion), among others. The number of AI 
patents granted globally increased 62.7 per cent to just over 62,000 between 2021 and 
2022
6
. Similarly, the annual global private investments in Generative AI surged from 
approximately USD 3 billion in 2022 to USD 25.2 billion by the end of 2023
7
. Between 
2021 and 2023, global corporate investments in all types of AI totalled USD 761 billion. 
Additionally, an increasing share of companies have been referencing AI in their earning 
calls lately
8
, with CEOs expecting AI adoption to lower labour requirements. 
13.6 If one were to look at these trends and the value generation expected from the 
investments, it would appear as if the ‘AI revolution’ is here and labour is soon going 
to be a thing of the past. Unease about what AI entails for workers and what it means 
for humanity as a whole has become part of daily discussions among academicians and 
policymakers, as reflected in many publications and reports. Making sense of these 
fears and anxieties would require a more in-depth breakdown of the short-term and 
long-term implications. Since there are many unknowns associated with AI at this 
point, looking at the present through the lens of previous technological revolutions may 
provide some insights into the way forward. Advancing the understanding about the 
challenges and opportunities that lie ahead is the purpose of this essay. 
13.7 In this regard Section 2 brings to light the adverse effects that emerged during 
previous technological revolutions and how they pertain to present-day concerns about 
Artificial Intelligence. The section also elaborates on the importance of remaining 
cognisant, as disruptions that are not carefully managed can lead to permanent societal 
damage for a country like India. Section 3 then goes on to discuss how these risks can be 
minimised through the creation of Social Infrastructure i.e., Institutions. The priority 
here is minimisation since the risks can never be fully mitigated. That is the price of 
innovation induced creative destruction. The various types of institutions detailed in 
this section can provide a much needed support system to ease the pains of a transition. 
13.8 However, building institutions is a time consuming process, requiring concerted 
effort from the public sector, the private sector and members of academia. In Section 
4, we put forward the hypothesis that India, at present, is afforded this time due to 
the challenging nature of scaling up technological adoption. Deployment at scale will 
require AI developers to address certain key challenges which requires a non-trivial 
6  Figure 1.2.1. Artificial Intelligence Index Report 2024, Stanford University, https://tinyurl.com/y4edef43
7  Ibid.
8  Aakash Kalyani, Serdar Ozkan, Mickenzie Bass and Mick Dueholm, "AI Optimism and Uncertainty: What Can 
Earnings Calls Tell Us Post-ChatGPT?," St. Louis Fed On the Economy, Sept. 30, 2024, https://tinyurl.com/
bdhnyyu7
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414
amount of time. Section 5 then outlines possible opportunities that AI may open up for 
India. It seeks to visualise a possible labour market evolution where the future of work 
is augmented by AI. Whether or not we go down this path will depend entirely on how 
robust our institutions are. Section 6 concludes the essay. 
REVOLUTIONS AND RIPPLES
13.9 The present discourse on AI from international organisations and social science 
researchers postulates that large scale labour market disruptions due to AI may 
materialise in the near-term. The International Monetary Fund states that AI poses risks 
of job displacements, notably for emerging markets and developing economies, which 
are not well placed to leverage the technology relative to the advanced economies
9
. The 
International Labour Organisation estimates that nearly 75 million jobs globally are at 
complete risk of automation due to AI
10
. Estimates for the UK show that 7 per cent of 
the existing UK jobs face a high risk of automation in the near term, rising to around 
18 per cent after 10 years
11
. Industry experts have told media outlets that ‘AI models 
could dramatically disrupt the labour market, including replacing routine jobs in some 
sectors.
12
’ A study by the Bank for International Settlements finds that 45 per cent of 
the jobs in the upper quartile of the wage distribution remain exposed to AI in the 
United States. If AI becomes highly capable, exposure increases across all quartiles of 
the income distribution
13
.
13.10 Estimates from private sector firms paint a similar picture. Goldman Sachs 
economists state that nearly 300 million full-time jobs remain exposed to AI-driven 
automation
14
. McKinsey estimates demonstrate how, by 2030, up to 30 per cent of 
current work hours could be automated by generative AI
15
 across Europe and the United 
States. They state that businesses will ‘need a major skill upgrade’ as the deployment 
of AI would raise the demand for social and emotional skills along with a need for 
9  Cazzaniga, M., Jaumotte, M. F., Li, L., Melina, M. G., Panton, A. J., Pizzinelli, C., ... & Tavares, M. M. M. (2024). Gen-
AI: Artificial intelligence and the future of work. International Monetary Fund, https://tinyurl.com/33hjum83
10   Minimizing the negative effects of AI-induced technological unemployment. Janine Berg. ILO. 9th October 2024, 
https://tinyurl.com/4f7thztd
11   Brione, P., Powell, A., Francis-Devine, B., Rough, E., Codd, F., & Buchanan, I. (2023). Potential impact of artificial 
intelligence on the labour market. House of Commons Library, https://tinyurl.com/jjj68k86
12   Will ChatGPT take your job – and millions of others? Published in Al Jazeera. 28th March 2023, https://tinyurl.
com/bdejbpxk
13   Auer, R., Köpfer, D., & Švéda, J. (2024). The Rise of Generative AI: Modelling Exposure, Substitution, and 
Inequality Effects on the US Labour Market. Substitution, and Inequality Effects on the Us Labour Market, 
https://tinyurl.com/3t6hekt4
14    Generative AI could raise global GDP by 7%. Goldman Sachs Research. 5th April 2023, https://tinyurl.
com/2vypxt3d
15   A new future of work: The race to deploy AI and raise skills in Europe and beyond. McKinsey Global Institute. 
21st May 2024, https://tinyurl.com/48tnydzu
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415
critical thinking and creativity. In line with the IMF estimates, insights from Ernst & 
Young state that while the impact of AI on emerging economies is lower relative to 
the advanced economies, one can still expect 57 per cent of occupations in emerging 
countries to be affected by higher Generative AI adoption
16
. Similar sentiments are 
prevalent among surveyed CEOs
17
 and other private sector estimates
18
.
13.11  Anxieties about the effects of AI remain high in India as well, considering our 
country is a services-led economy. Among white-collar workers, an IIM Ahmedabad 
Survey highlights how 68 per cent of the surveyed employees expect their jobs to be 
partially or fully automated by AI within the next five years
19
. Forty per cent of the 
employees believe AI will make their skills redundant. Copestake et al. (2023) also 
state that firms have substantially increased AI skill demand across regions, industries, 
firms and occupations
20
. As per their findings, these jobs pay a 13 to 17 per cent salary 
premium over baseline estimates. India’s banking sector is also witnessing adoption 
among well-capitalised and larger banks, per a recently published RBI study
21
. With 
trends expected to continue towards even higher AI adoption by the private sector and 
the market, NASSCOM estimates that the Indian AI market will grow at 25 to 35 per 
cent CAGR by 2027
22
.
13.12 These estimates are substantial and when viewed through the lens of history, 
one could argue that concerns, to a degree, are valid. Previous technological revolutions 
have been painful, and the damage brought on has been long lasting. Andrew Haldane 
illustrates that in the pursuit of productivity and profits, the substitution of labour for 
capital has resulted in widespread economic hardship, damaging social cohesion
23
. 
Each revolution displaced large segments of the workforce. Many struggled to find 
new employment, especially in geographies and occupations where the scale of impact 
was unanticipated or underestimated. Consequently, income inequality rose, as those 
who adapted to new technological demands saw their wages increase, while others 
experienced declining pay and fewer opportunities. Recent experiences of the same, 
16   The impact of GenAI on the labor market. Gregory Daco. EY-Parthenon. 14th February 2024, https://tinyurl.
com/m9vs3c4a
17   2024 Gartner CEO and Senior Business Executive Survey. Gartner. 27th June 2024. https://tinyurl.com/
mr3ybvss
18  AI Jobs Barometer 2024. PricewaterhouseCoopers, https://tinyurl.com/4dnwpfs8
19   Labour-force Perception about AI: A study on Indian White-collar Workers. Brij Disa Centre for Data Science and 
Artificial Intelligence, IIM Ahmedabad. August 2024, https://tinyurl.com/2mjmuke4
20    Copestake, A., Marczinek, M., Pople, A., & Stapleton, K. (2023). Ai and services-led growth: Evidence from 
Indian job adverts. Working Paper, International Monetary Fund and World Bank, Washington, DC, https://
tinyurl.com/2ms6y2sz
21   How Indian Banks are Adopting Artificial Intelligence? Shobhit Goel, Dirghau K. Raut, Madhuresh Kumar and 
Manu Sharma. RBI Bulletin, October 2024, https://tinyurl.com/4jznsbsc
22  AI Adoption Index 2.0. NASSCOM.
23    Ideas and Institutions – A Growth Story. Speech by Andrew Haldane. 23rd May 2018, https://tinyurl.
com/246jvy5p