Substitution or creation? Identifying the role of artificial intelligence in employment

Abstract

Recognising the significant role of artificial intelligence in the labour market is essential for China to develop sustainably. The research utilises the mixed frequency vector auto-regression (MF-VAR) technique, which would innovatively incorporate data at different frequencies into one model to identify the intricate correlation between the monthly artificial intelligence index (AII) and the quarterly unemployment rate (UR) in China. Through comparison, the MF-VAR method has a more substantial explanatory power than the low-frequency VAR (LF-VAR) model, the impulse responses of the former reveal that AII exerts favourable and adverse influences on UR. Among them, the positive effect occurs on the AII in the first and second months. In contrast, the negative one appears on the AII in the third month, highlighting that artificial intelligence has both stimulating and inhibiting effects on the labour market in China. By analysing UR’s predictive error variance decomposition, the total impact of China’s artificial intelligence technology on employment is a substitution; this outcome is accordant with the theoretical dis¬cussion. In the new round of scientific and technological revolution and industrial transformation, meaningful recommendations for China would be put forward to avert the wave of unemployment brought by the development of artificial intelligence technology. First published online 09 September 2024

Keywords

• artificial intelligence
• employment
• mixed frequency data
• China