The Jevons Employment Effect From AI

About the Author

Torsten Slok

Partner, Chief Economist

A lawyer drafts contracts, negotiates terms, manages filings, advises clients and flags risk.

An accountant reconciles books, prepares workpapers, handles audits and prepares tax returns.

A consultant scopes projects, runs interviews, builds decks and tracks implementation.

Giving AI tools to knowledge workers will lower the cost of doing some of these tasks. And when things get cheaper, demand goes up.

That is the Jevons paradox.

When steam engines made coal more efficient, Britain didn't burn less coal, it burned more. The same pattern is happening for cheaper legal services, consulting services and financial services.

Call it the Jevons employment effect: When the cost of professional work falls, the addressable market expands and the total number of firms and workers in the field grows, see the first chart below. That includes startups launched by recent college graduates, who can now compete with established firms on certain tasks. That is likely the reason why the unemployment rate is falling more for young workers, see the second chart, and the number of new businesses created every week is at the highest levels in US history, see the third chart.

The bottom line is that cheaper inputs don't shrink industries. Instead, AI is going to increase both productivity and employment.

The Jevons employment effect: As professional work gets cheaper, demand outruns automation — Note: Illustration. Source: Apollo Chief Economist

Unemployment rate for young people declining — Sources: US Bureau of Labor Statistics (BLS), Macrobond, Apollo Chief Economist

Weekly business formation exploding higher, likely driven by AI — Sources: US Census Bureau, Macrobond, Apollo Chief Economist

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The Jevons Employment Effect From AI

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