Augmenting or Automating Labor? The Effect of AI Development on New Work, Employment, and Wages

Abstract: AI is reshaping the labor market by changing the task content of occupations. This study investigates the impact of AI development on the emergence of new work, employment, and wages in the United States from 2015 to 2022. I develop innovative methods to measure occupational and industry exposure to AI technologies that substitute labor (automation AI ) or enhance workers' output (augmentation AI), and to identify new work (i.e., new job titles). To address endogeneity, I use instrumental variable estimators, leveraging AI development in countries with limited economic ties to the United States. The findings indicate that automation AI negatively impacts new work, employment, and wages in low-skilled occupations, while augmentation AI fosters the emergence of new work and raises wages for high-skilled occupations. These results suggest that AI may contribute to rising wage inequality.