AI investment and the jobs paradox: unpacking substitution versus creation in 20 leading economies
Younes Nademi
1
(
Department of Economics, Faculty of Humanities, Ayatollah Boroujerdi University, Boroujerd, Iran., Zagros Data Science Research Group, Ayatollah Boroujerdi University, Boroujerd, Iran. (Corresponding Author), Younesnademi@abru.ac.ir
)
Ramin Khochiany
2
(
Department of Economics, Faculty of Humanities, Ayatollah Boroujerdi University, Boroujerd, Iran., Zagros Data Science Research Group, Ayatollah Boroujerdi University, Boroujerd, Iran. khochiany@abru.ac.ir
)
Reza Maaboudi
3
(
Department of Economics, Faculty of Humanities, Ayatollah Boroujerdi University, Boroujerd, Iran., Zagros Data Science Research Group, Ayatollah Boroujerdi University, Boroujerd, Iran. maaboudi@abru.ac.ir
)
Keywords: Artificial Intelligence, Unemployment Rate, Dynamic Simultaneous-Equations Panel, Generalized Method of Moments,
Abstract :
This article investigates the dual consequences of private-sector investment in artificial intelligence (AI) for labour markets and unemployment in leading economies. We compile a panel dataset of the twenty countries that attracted the largest volumes of AI-related venture capital between 2017 and 2023. A two-equation simultaneous system is then estimated using the system-GMM method, which disentangles two distinct channels: (i) the productivity channel, capturing the substitution of labour by AI-enabled capital, and (ii) the job-creation channel, stemming from the expansion of AI-complementary industries and services as well as the re-engineering of value chains. Our estimates show that, in the absence of compensating policies, productivity gains increase unemployment, whereas direct AI investment reduces it; the net outcome in each country depends on the balance of these two forces. Robustness checks— including instrument-validity and stability tests— confirm the reliability of the results. The findings suggest that digital up-skilling programmes, the development of innovation ecosystems, curricular reform, and targeted support for technology-oriented start-ups are essential to steer technological change toward sustainable job creation. Finally, cross-country heterogeneity in absorptive capacity and institutional quality explains the varying magnitudes of observed effects, with economies possessing mature innovation systems better able to offset substitution effects and achieve a more entrepreneurial equilibrium between labour and technology.
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