BIS paper finds 4 percent AI productivity gain for European firms
A new Bank for International Settlements working paper finds that artificial intelligence adoption increases labor productivity by 4 percent in European firms. The study, based on data from over 12,000 non-financial firms, suggests gains stem from capital deepening rather than job displacement.
AI boosts output, not job cuts
The study provides new evidence on how artificial intelligence (AI) adoption affects productivity and employment in Europe.
Using matched EIBIS-ORBIS data from over 12,000 non-financial firms in the European Union and United States, researchers found that AI adoption increases labor productivity by 4 percent.
These productivity gains are attributed to capital deepening, meaning AI augments worker output rather than replacing labor in the short run.
The paper reports no adverse effects on firm-level employment.
Additionally, AI-adopting firms are more innovative, and their workers benefit from higher wages.
The analysis also highlights the critical role of complementary investments in software, data, or workforce training to fully unlock these productivity gains.
Uneven gains, policy implications
Despite the overall productivity benefits, the study reveals an uneven distribution of AI adoption gains, concentrating in medium and large firms.
This stratification raises concerns about potentially widening inequality in the benefits derived from AI.
To establish causality, the authors developed a novel instrumental variable strategy, leveraging US firms' AI adoption rates as an exogenous proxy for EU firms.
The findings carry significant implications for European policymakers, suggesting a balanced approach that fosters growth for small and innovative firms, coupled with targeted incentives for AI adoption.
Public policy should also prioritize investments in integration, workflow redesign, and continuous learning to maximize returns from AI deployment.