“Our findings suggest that the continuation of the established order, the essential expectation of most economists, is definitely the least likely final result,” Davis says. “We project that AI can have an excellent greater effect on productivity than the notebook computer did. And we project that a scenario where AI transforms the economy is much more likely than one where AI disappoints and monetary deficits dominate. The latter would likely result in slower economic growth, higher inflation, and increased rates of interest.”
Implications for business leaders and staff
Davis doesn’t sugar-coat it, nonetheless. Although AI guarantees economic growth and productivity, it can be disruptive, especially for business leaders and staff in knowledge sectors. “AI is prone to be probably the most disruptive technology to change the character of our work for the reason that notebook computer,” says Davis. “Those of a certain age might recall how the broad availability of PCs remade many roles. It didn’t eliminate jobs as much because it allowed people to give attention to higher value activities.”
The team’s framework allowed them to look at AI automation risks to over 800 different occupations. The research indicated that while the potential for job loss exists in upwards of 20% of occupations because of this of AI-driven automation, nearly all of jobs—likely 4 out of 5—will lead to a combination of innovation and automation. Staff’ time will increasingly shift to higher value and uniquely human tasks.
This introduces the concept that AI could function a copilot to varied roles, performing repetitive tasks and usually assisting with responsibilities. Davis argues that traditional economic models often underestimate the potential of AI because they fail to look at the deeper structural effects of technological change. “Most approaches for fascinated by future growth, similar to GDP, don’t adequately account for AI,” he explains. “They fail to link short-term variations in productivity with the three dimensions of technological change: automation, augmentation, and the emergence of recent industries.” Automation enhances employee productivity by handling routine tasks; augmentation allows technology to act as a copilot, amplifying human skills; and the creation of recent industries creates recent sources of growth.
Implications for the economy
Sarcastically, Davis’s research suggests that a reason for the relatively low productivity growth in recent times could also be an absence of automation. Despite a decade of rapid innovation in digital and automation technologies, productivity growth has lagged for the reason that 2008 financial crisis, hitting 50-year lows. This appears to support the view that AI’s impact will likely be marginal. But Davis believes that automation has been adopted within the improper places. “What surprised me most was how little automation there was in services like finance, health care, and education,” he says. “Outside of producing, automation has been very limited. That’s been holding back growth for no less than 20 years.” The services sector accounts for greater than 60% of US GDP and 80% of the workforce and has experienced among the lowest productivity growth. It’s here, Davis argues, that AI will make the most important difference.
Considered one of the most important challenges facing the economy is demographics, because the Baby Boomer generation retires, immigration slows, and birth rates decline. These demographic headwinds reinforce the necessity for technological acceleration. “There are concerns about AI being dystopian and causing massive job loss, but we’ll soon have too few staff, not too many,” Davis says. “Economies just like the US, Japan, China, and people across Europe might want to step up function in automation as their populations age.”
For instance, consider nursing, a career wherein empathy and human presence are irreplaceable. AI has already shown the potential to reinforce quite than automate on this field, streamlining data entry in electronic health records and helping nurses reclaim time for patient care. Davis estimates that these tools could increase nursing productivity by as much as 20% by 2035, a vital gain as health-care systems adapt to ageing populations and rising demand. “In our most certainly scenario, AI will offset demographic pressures. Inside five to seven years, AI’s ability to automate portions of labor will likely be roughly reminiscent of adding 16 million to 17 million staff to the US labor force,” Davis says. “That’s essentially the identical as if everyone turning 65 over the following five years decided to not retire.” He projects that greater than 60% of occupations, including nurses, family physicians, highschool teachers, pharmacists, human resource managers, and insurance sales agents, will profit from AI as an augmentation tool.
Implications for all investors
As AI technology spreads, the strongest performers within the stock market won’t be its producers, but its users. “That is smart, because general-purpose technologies enhance productivity, efficiency, and profitability across entire sectors,” says Davis. This adoption of AI is creating flexibility for investment options, which implies diversifying beyond technology stocks is perhaps appropriate as reflected in Vanguard’s Economic and Market Outlook for 2026. “As that happens, the advantages move beyond places like Silicon Valley or Boston and into industries that apply the technology in transformative ways.” And history shows that early adopters of recent technologies reap the best productivity rewards. “We’re clearly within the experimentation phase of learning by doing,” says Davis. “Those firms that encourage and reward experimentation will capture probably the most value from AI.”
