Artificial Intelligence, Labor Market Transformation, and Income Inequality: Examining the Economic Impact of Automation in Developing Economies

Abstract

In developing economies, artificial intelligence (AI) - powered automation is changing the patterns of employment, skill needs and income distribution. Automation has the potential to enhance productivity and create new employment opportunities, but can also reduce routine jobs, increase job polarization, and exacerbate inequalities. This qualitative study analyzes the impact of automation driven by artificial intelligence technologies on labour markets in developing economies, particularly with respect to job loss and creation, skill transformation, wage polarization, the rise of informal employment and labour-market institutions. The study takes an interpretivist qualitative stance, employing a method of documentary and secondary data analysis of recent academic literature and authoritative reports, and analyzed by applying thematic analysis. Five inter-related themes emerge: labour-market institutions and social protection; the importance of employment restructuring; changing skill needs; wage and income polarization; and vulnerability of informal workers. Based on the analysis, it is not expected that the introduction of AI will yield a one-size-fits-all employment impact, but rather one that is contingent on the technology's adoption, workers' skills, economic systems, and institutional capabilities. The lack of infrastructure, skills and social protection, along with informality, pose especially severe problems for developing economies, as they can limit the ability of workers to access technologically transformative opportunities. The study brings a holistic perspective to the relationship between inequality and AI automation and puts forward the call for investment in digital infrastructure, skills development, worker protection, and labour market policies to ensure inclusive outcomes.