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Efficiency economics

We are in the teenage years of AI. The playful toddler of 2021 (when models were cute) and the promising childhood of 2023 ( that AI will eventually replace us all) are well past us. Today we have to take the difficult call of whether the replacement of workforce that was promised is to be strategically acted upon. More than the risk of adopting the tech, lies the fear of missing out on the bus, since the wrath of failing to modernise is well documented.

In 2025 alone, around a million jobs were lost to AI (that's what the company's memo read). And there is some merit to it. Many companies have publicly committed their AI investment, and have to now show the result of the massive bills - the unanimous answer to which has been productivity increase. But, such is the story of economics that one lever can be pushed without comprising on another.

Efficiency is simple maths, the output must grow for the similar input (read workforce - and tip your hat to Karl Marx). The sinister side of comes to face when firms, unable to increase output (or attribute the output growth to AI) look at the prospect of reducing the employees. This is fueled by, the growing gamut if strategic activities that firms engage, and a relatively bloated workforce.

The consequences of this efficiency shorthand, is long run economics impact. Downsizing of workforce, in a coordinated manner would lead a systemic rise in unemployment. This one one hand will make the other employees anxious, pushing a culture of fear than excellence. More so as all macroeconomists agree - large scale unemployment is the first sign of upcoming recession. However, this is a unique recession where output is not decreased, but workforce has been squeezed to make room for more profits. 


Economics thinkers have urged governments to prepare for this. Either in the form of a automation tax, levied on industries which are rapidly downsizing their workforce. Or a unemployment cess, that funds lifestyle of unemployed citizens. 

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