The Impact of Automation on Shared Prosperity

Welcome to The Inference. Today, we’re diving into a key issue shaping the intersection of AI and finance: automation and its impact on shared prosperity. Automation has always promised efficiency, but has it truly benefited everyone? In this episode, we’ll explore how automation reshaped the postwar economy, how things shifted in the 1980s, and what the rise of AI means for the future.

The Post-War Boom: Automation as a Tool for Growth

After World War II, automation was a force for good. Machines replaced manual labor, but in a way that created new opportunities — new industries were born, wages rose, and workers shared in the productivity gains.

To put it in perspective: real wages in the U.S. grew by over 2.5% annually during this period. It wasn’t just about businesses becoming more efficient — companies shared these gains with workers, lifting millions into the middle class.

A modern comparison? Think of the early 2010s when companies embraced remote work tools. Businesses adopted digital collaboration platforms not to cut jobs, but to empower employees, increasing productivity while maintaining flexibility. This period mirrors the idea of automation creating opportunity rather than replacing labor.

But in the 1970s, this shared prosperity model began to break down.

The 1980s Shift: From Opportunity to Replacement

Starting in the 1980s, automation took a darker turn. Rather than creating new opportunities, companies began using technology to replace workers and reduce costs. As Acemoglu and Johnson argue in Power and Progress, many American companies came to view labor as a burden — and the goal shifted to minimizing workforce size to compete globally.

Not every country went down this path. Take Germany’s Industry 4.0 initiative — instead of displacing workers, they integrated employees into the automation process. Workers were given tools like AI-powered design software to enhance their contributions. This shows how automation, when used thoughtfully, can empower employees rather than replace them.

The OECD’s research backs this up, highlighting that the impact of automation is shaped by policy. Governments and companies that align technological progress with worker well-being see better outcomes than those that don’t (source).

The AI Era: A Turning Point for Automation

Fast forward to today, and AI — especially generative AI — is transforming industries. According to the IBM 2024 CEO Study, 59% of CEOs say their success hinges on AI adoption, and many are willing to take bigger risks than ever to maintain a competitive edge.

But here’s the dilemma: If companies pursue automation without creating new opportunities, inequality will deepen. AI could follow the same path as past automation — eliminating jobs and concentrating wealth — or it could lead to a new era of shared prosperity, where AI complements workers.

Why Leadership and Rent Sharing Matter

History shows that sharing the benefits of productivity gains — through rent-sharing — was essential for prosperity. But what exactly is rent sharing? It’s the idea that when companies become more productive, they split the gains with workers, typically through higher wages or better benefits.

Unfortunately, the collapse of rent-sharing agreements in the 1980s was a major factor behind today’s rising inequality. Germany offers a glimpse of what’s possible: by involving workers in tech transformations, they maintained high productivity while protecting jobs.

Meanwhile, in the U.S., companies like Amazon have taken a different approach. Amazon’s use of AI to monitor and manage workers — even automating some terminations — raises concerns about prioritizing profits over people (source).

What’s Next? Choosing the Path Forward

If automation and AI are here to stay — and they are — we need to rethink how we use these technologies. That means:

• Creating policies that incentivize rent-sharing between companies and workers.
• Using AI as a tool to create opportunity, not just cut costs.
• Redesigning corporate strategies to empower employees, as seen in Germany’s Industry 4.0 model.

The IBM CEO Study makes it clear that sticking to the old ways isn’t safer — it’s riskier. Companies must move beyond profit-only models toward long-term strategies that benefit both employees and shareholders.

Conclusion: Designing a Future of Shared Prosperity

Here’s the key takeaway: Automation and AI can either widen inequality or create shared prosperity. It’s up to leaders — governments, businesses, and individuals — to choose the path forward. Will AI become a tool that empowers workers, or one that replaces them?

The answer lies in how we design and deploy these technologies. With the right approach, we can build a future where technology serves everyone.

This wraps up today’s episode. Stay curious, stay informed — and let’s build a future together where AI helps us all thrive.