The Future Is Now: The Macroeconomic Implications of AI

Highlights

• It is increasingly clear that the widespread use of artificial intelligence (AI) is boosting growth, investment, productivity and profitability, and more so in the United States than in Canada. This suggests Canada has an opportunity to increase the rate of AI adoption and attract investment, thereby narrowing the gap with the US. And it’s important that Canada work to close this gap now, as labour productivity growth like that seen during the internet boom of the late 1990s and early 2000s could dramatically raise real GDP per capita relative to the alternative.
• However, the more widespread use of AI risks causing uneven effects across growth, employment, incomes and inflation during the transition phase. Some early signals from the US point to productivity gains accruing more to profits than wages, and AI creating localized labour market disruptions in highly exposed occupations. Canada may be seeing the first signs of this now, although the evidence is mixed. Concerns about the erosion of real compensation from AI adoption has prompted backlash from some quarters, with modest policy responses to address concerns so far. This pushback could increase if AI use becomes more disruptive. Canada would be wise to avoid some of the pitfalls currently driving AI skepticism south of the border.