Macro Markets and Machines_The Economic and Market Transformation Driven by AI_GWM report - Flipbook - Page 43
Macro, Markets, and Machines
November 2025
Section 5.1: Tensions and Trade-Offs
Workers, Wages, and Winners
Labour market outcomes will be a major force shaping the macro trajectory. Whether AI substitutes for tasks
or augments them determines the path for employment, earnings, and the labour share. If substitution outpaces
the creation of complementary tasks, effective labour input declines, the labour share drifts lower, and aggregate
demand softens – even as output potential rises. The more resilient path is augmentation that lifts task
productivity, keeps workers attached, and enables earnings and demand to reinforce diffusion.
Potentially uneven distributional effects could be politically salient. Impacts on wages and employment will
likely vary across sectors, task types, firm sizes, and worker profiles. Augmentation may reward high-skill workers
and scalable firms, while displacement could threaten wage compression in routine or automatable roles. On the
other hand, some speculate AI could narrow skill premiums in certain functions by standardizing high-value
tasks. In our view, it remains premature to declare winners and losers, as evidence is still thin and studies mostly
inconclusive or inconsistent. Wider dispersion is plausible, even when averages improve, if matching frictions and
uneven adoption amplify differences.
Reallocation speed must keep pace with task reconfiguration to avoid scarring. If reskilling, matching, and
re-employment lag layoffs, separations persist, participation rates fall, and hysteresis compromises future
productivity. Automatic stabilizers, such as unemployment insurance, and more targeted ones play a critical role
in cushioning shocks, but coverage and adequacy vary widely. Among OECD countries, unemployment insurance
offsets less than 60% of income loss and only on a temporary basis, while long-term welfare benefits sit well
below poverty lines in most countries (Exhibit 36, 37). Meanwhile, advanced countries spend only about 0.3% of
GDP on active labour market policies such as training programs or employment services to support workforce
reintegration (Exhibit 38). These averages mask significant cross-country variation in generosity and accessibility.
And the evidence base on their effectiveness – especially amid rapid technological change – remains mixed. As AI
reshapes task demand, readiness will hinge on the ability to support seamless labour market reintegration.
Exhibit 36 – Adequacy of Minimum Income Benefits: Welfare Benefits Vary Widely Across Countries
70%
60%
50%
40%
30%
20%
10%
0%
JPN
GBR
ESP
DEU
AUS
FRA
OECD
GRC
CAN
USA
ITA
Minimum income benefits as share of median disposable household income (%)
OECD poverty line
Note: Reflects annual income of jobless single person, no children, as percentage of median disposable household income.
Sources: OECD; Scotiabank Economics.
Scotia Wealth Management
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