IN its latest World Employment and Social Outlook update, the International Labor Organization (ILO) found that increasing adoption of artificial intelligence (AI) is a major factor in the fall of labor income worldwide.
The ILO analyzed the impact of technological innovations over the last two decades across 36 countries, which showed that while these innovations have produced persistent increases in labor productivity and output, they can also reduce the labor income share.
This development is consistent with automation-based technological innovations driving the aggregate effects, and the ILO recommended that a stronger policy response across a wide range of relevant domains could put a brake on labor income share from sliding further down.
It added that the benefits of technological progress should be widely distributed to mitigate the potential adverse impacts on inequality. In analyzing the role of technological progress as an important driver in determining the labor income share, the ILO found evidence compatible with automation-oriented technological progress causing labor income share declines.
These findings, based on data from 2003 to 2019, are particularly relevant given the latest advances in the AI field. Recent developments make artificial intelligence particularly relevant in evaluating the relationship between technological innovations and labor income share. Across a sample of 36 countries, composed mostly of advanced economies, technological advances over the past 20 years are found to produce persistent increases in labor productivity and output.
However, the evidence in the ILO report suggests that automation-oriented technological progress could significantly contribute to labor income share declines.
Admittedly, the global labor income share has been declining for a long time, and the trend in recent years has been no exception. Its adverse impact is that this decline puts upward pressure on inequality as labor income is more evenly distributed than capital income.
The data also showed slow progress in reducing NEET — not in employment, education, or training — rate globally and only modest reductions in the gender gap.
The global incidence of NEET has seen only a modest decline since 2015, falling from 21.3 percent to 20.4 percent in 2024. Although the global rate has declined slightly, the total number of youth NEET has remained stagnant and is projected to increase in the coming years.
This highlights insufficient employment and education opportunities for the growing global youth population. In addressing the adverse impact of innovation on labor income, ILO noted that if these historical and economic patterns were to persist, the absence of a stronger policy response to the recent breakthroughs in generative AI could exert further downward pressure on the labor income share.
Nonetheless, the results presented should not be taken as a prediction. First, it’s still uncertain about the type and size of shock that AI will represent, which could be very different from what has been observed in the recent past. Second, the technological innovation process can be steered and influenced through policies that mitigate potential adverse impacts on inequality to ensure that the benefits of technological progress are widely distributed.
Ensuring young people’s participation in education and their effective integration into the labor market is crucial for long-term social and economic development, particularly in the context of rapid technological advances.
Estimates suggest that large gaps remain in this area. Despite modest improvements in reducing the global NEET rate since 2015, NEET incidences remain at high levels.
Finally, stark gender disparities persist, although some progress has been made in narrowing this gap. NEET estimates show that large gender inequalities remain in young people’s access to education and employment, although there has been moderate progress in reducing gender gaps over the past two decades.
The female youth NEET incidence is estimated at 28.2 percent in 2024, more than double the incidence among young men (13.1 percent). Overall, the slow pace of progress highlights the need to increase efforts to provide decent work opportunities and to improve access to education, particularly in the regions with the highest NEET incidences.
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