Artificial intelligence investment and the jobs paradox: unpacking substitution versus creation in 20 leading economies

Subject Areas : Economic Development, Innovation, Technological Change, and Growth

Younes Nademi ^{1 *} , Ramin Khochiany ² , Reza Maaboudi ³

1 - Department of Economics, Faculty of Humanities, Ayatollah Boroujerdi University, Boroujerd, Iran., Zagros Data Science Research Group, Ayatollah Boroujerdi University, Boroujerd, Iran. (Corresponding Author), [e-mail]
2 - Department of Economics, Faculty of Humanities, Ayatollah Boroujerdi University, Boroujerd, Iran., Zagros Data Science Research Group, Ayatollah Boroujerdi University, Boroujerd, Iran. [e-mail]
3 - Department of Economics, Faculty of Humanities, Ayatollah Boroujerdi University, Boroujerd, Iran., Zagros Data Science Research Group, Ayatollah Boroujerdi University, Boroujerd, Iran. [e-mail]

Received: 2025-07-13 Accepted : 2025-08-13 Published : 2025-10-23

Keywords: Artificial Intelligence, Unemployment Rate, Dynamic Simultaneous-Equations Panel, Generalized Method of Moments JEL Classification: J64, O33, C23,

Abstract :

This article investigates the dual effects of private-sector investment in artificial intelligence (AI) on labor 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 estimated using the system-GMM method, capturing two distinct channels: (i) the productivity channel, reflecting labor substitution by AI-enabled capital, and (ii) the job-creation channel, driven by the expansion of AI-complementary industries and services and the re-engineering of value chains. Our results indicate that, in the absence of compensatory policies, productivity gains tend to increase unemployment, while direct AI investment reduces it; the net outcome depends on the relative strength of these forces in each country. Robustness checks, including instrument validity and stability tests, confirm the reliability of the findings. The results underscore the importance of digital up-skilling programs, innovation ecosystems, curricular reforms, and targeted support for technology-oriented start-ups to guide technological change toward sustainable job creation. Cross-country heterogeneity in absorptive capacity and institutional quality further explains the variation in effects, with economies possessing mature innovation systems better able to mitigate substitution effects and achieve a balanced, entrepreneurial equilibrium between labor and technology.

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