Anxiety about AI replacing human workers has been on the rise this year, but according to Torsten Sløk of Apollo Global Management, the booming technology will actually have the opposite effect.
In a post on his blog this week, Sløk said he’s not worried about what labor market doomsday scenarios that some have floated. He used the economic principle of Jevons paradox to illustrate why.
“When steam engines made coal more efficient, Britain didn’t burn less coal, it burned more,” he said. “The same pattern is happening for cheaper legal services, consulting services and financial services.”
First introduced by British economist William Stanley Jevons, the principle challenges the assumption that efficiency gains will always lead to less demand for labor.
While Jevons introduced the paradox in 1865, Sløk says that it is still relevant now, amid predictions of big gains in productivity. He sees an economy in which the AI revolution sparks more demand for workers across industries.
As demonstrated in the chart below, Sløk thinks AI will continuously drive down the cost per unit of professional work through the next decade, while the amount of professional work being consumed will skyrocket.
“Giving AI tools to knowledge workers will lower the cost of doing some of these tasks,” he noted. “And when things get cheaper, demand goes up.”
The economist used the term “Jevons employment effect” to describe what he sees unfolding as AI transforms the workforce by making it more efficient and compelling companies to grow headcount.
His perspective is in stark contrast to recent views of some market commentators, like Citrini Research, who have published dire predictions of AI-driven employment wipeouts and economic stagnation.
Other top finance pros are in Sløk’s camp, though. Andrew Slimmon of Morgan Stanley investment management made similar predictions, highlighting the possibility that AI could be a major job creator.
“The bottom line is that cheaper inputs don’t shrink industries, Slok said. “Instead, AI is going to increase both productivity and employment.”
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