AI Job Displacement Might Resemble Prior Manufacturing, IT and Service Offshoring and Outsourcing

Will artificial intelligence lead to a new wave of “offshoring” or “outsourcing” of jobs, as happened to manufacturing and then many information technology and service jobs? Studies suggest the possibility is real, as AI seemingly enhances the performance of lower-skill workers more than highly-skilled workers, closing the performance gap between high and low. 

While much of the concern about artificial intelligence impact on jobs focuses on job displacement, perhaps a greater issue will ultimately be to “devalue” the wage premium garnered by top performers over lower performers. 

The reason is that AI might benefit lower-skilled workers more than high performers, allowing employers to rely more on lower-skilled workers to perform tasks once requiring higher-skilled workers. 

Wage compression, in other words, can happen when technology allows less-skilled workers to perform expert-level tasks. That might imply faster wage growth for lower-wage workers compared to higher-wage workers.

A study by the Congressional Research Service suggests that between 2019-2023, U.S. real wage growth was dramatically faster for low-wage workers (around three percent annualized) compared to high-wage workers (around one percent annualized). This contrasts with the prior 40 years where high-wage workers saw faster growth.

But forces other than AI might also be at work. A CRS study notes that wage rates for workers with advanced degrees rose faster than for lower-skilled or mid-skill workers between 1979 and 2019. And a study suggests wage increases were fastest for lower-skill workers between 2020 and 2024. 

In other words, we might see another unfolding of job displacement from high-wage areas to low-wage areas if AI allows lesser-skilled workers to accomplish tasks formerly conducted by higher-skilled workers. 

Study	Key Findings
Stanford/MIT (2023)	AI disseminates knowledge of high-skill workers to less-skilled workers
Congressional Research Service (2024)	Wage compression from 2019-2023 with much faster growth for low-wage workers
Oxford University (Frey et al.)	Language AI benefits less-skilled workers more than highly skilled
Brekelmans & Petropoulos (2020)	- AI likely to significantly alter low and middle-skilled jobs - High-skilled jobs relatively less at risk, but impact still non-negligible

Indeed, that is a pattern already established in the 20th century as manufacturing jobs moved to lower-wage countries. Many manufacturing jobs, particularly in labor-intensive industries like textiles and electronics assembly, were outsourced from developed nations to developing countries.

In the late 20th and early 21st centuries, a "second wave" of outsourcing emerged, targeting white-collar jobs in the information technology and services sectors. Countries such as India, with large pools of English-speaking graduates and significantly lower wages, became major destinations for outsourcing IT services, software development, and business processes.

And there already is evidence that AI benefits lower-skilled workers more than highly-skilled workers, narrowing the performance gap between the groups. That should create the possibility of substituting use of AI-enhanced formerly-lower-performing workers in place of at least some highly-skilled workers. 

The issue is how much the performance gap is narrowed and to what degree tasks can be redesigned so that AI-enhanced workers of lower skill can handle tasks once performed by higher-skilled workers.  

A study by researchers from Stanford and MIT analyzed data from 5,179 customer support agents at a Fortune 500 company. The findings showed that access to an AI conversational assistant increased productivity (measured by issues resolved per hour) by 14 percent on average. However, the impact was greatest on novice and low-skilled workers, with minimal impact on experienced and highly skilled workers.

Another study by Oxford University's Carl Benedikt Frey and others found that the introduction of language-based AI software in the workplace benefits less-skilled workers more than highly skilled ones.