Economists continue to debate what kind of long-term impact AI will have on job market and productivity growth. A new McKinsey Global Institute paper on AI job growth published this week suggests these benefits may be harder to achieve in Europe, potentially widening the innovation and economic divide between the U.S. and Europe.
The U.S. leads in generative AI adoption, largely because most AI technologies are developed there. Europe, known for cautious regulation of technological innovations, may lag behind in capturing productivity growth from AI.
U.S. productivity growth has surged, while Europe lags significantly. Both regions will need around 12 million workers to transition jobs due to AI over the next five years. This transition aligns with U.S. norms but is double Europe’s pre-pandemic rate. Without adequate worker transitions, Europe risks a polarized labor market.
The paper estimates that rapid AI adoption could boost European productivity growth to 3% by 2030, whereas slow adoption could limit it to 0.3%.Share
The McKinsey report explores these shifts and outlines the steps needed to harness the full potential of generative AI (gen AI) and other emerging technologies.
We’ve summarized the key points below.
AI Job Growth Report: Key Findings
Shifts in Labor Demand
By 2030, Europe and the United States could see up to 30% of current hours worked being automated, with gen AI playing a pivotal role. This transition is expected to drive an increase in demand for workers in STEM-related fields, healthcare, and other high-skill professions, while reducing the need for office workers, production workers, and customer service representatives. The McKinsey report projects that Europe could require up to 12 million occupational transitions, double the pace seen before the pandemic. In the United States, the number of required transitions could also reach nearly 12 million, aligning with historical trends.
AI Jobs Growth Needs Skills Upgrades
As automation and AI reshape the workforce, businesses will need to prioritize skills upgrades. Demand for technological skills is anticipated to rise significantly, with a 25% increase in Europe and a 29% increase in the United States by 2030. Social and emotional skills, critical for roles requiring empathy and leadership, will also see increased demand. Conversely, roles requiring basic cognitive skills, such as data processing and elementary data handling, are expected to decline as automation becomes more prevalent.
Challenges for Lower-Wage Workers
Workers in lower-wage occupations face unique challenges in this evolving labor market. As demand shifts toward higher-wage roles, those in lower-wage positions will need to acquire new skills to transition to better-paying jobs. Without effective retraining programs, there’s a risk of a more polarized labor market, with a surplus of lower-wage workers and a shortage of higher-wage employees.
Business and Policy Imperatives
To navigate these changes successfully, businesses and policymakers must make strategic choices. Accelerated technology adoption, coupled with proactive worker redeployment, could boost annual productivity growth rates in Europe to as much as 3% by 2030. However, slow adoption and inadequate worker redeployment could limit productivity growth to just 0.3%, mirroring current levels in Western Europe.
The Path Forward
Embracing Technological Change
The McKinsey report highlights the necessity for rapid technology adoption to unlock greater productivity growth. Two scenarios are considered: a “faster” adoption scenario and a “slower” one. Faster adoption would lead to higher productivity but also more short-term labor disruptions. The report underscores the importance of redeploying automated worker time effectively, which depends on successful worker training programs and strategic labor market policies.
Addressing Skills Shortages
A survey of over 1,100 C-suite executives in Europe and the United States reveals significant skills shortages, particularly in advanced IT, data analytics, critical thinking, and problem-solving. To address these gaps, companies are focusing on retraining existing workers, with plans to retrain about 32% of their workforce on average. Hiring and contracting are also part of the strategy, but retraining remains the most widely reported approach.
Supporting Lower-Wage Workers
Occupational transitions will disproportionately affect lower-wage workers. In Europe, workers in the two lowest-wage brackets are three to five times more likely to need to change occupations compared to top earners. In the United States, this disparity is even more pronounced, with lower-wage workers up to 14 times more likely to face occupational shifts. Effective retraining and upskilling programs are crucial to support these workers and prevent labor market polarization.
