AI Can Narrow Global Income Gaps By Hitting Rich Economies Harder. Bernstein Explains How

Middle income and emerging nations have been jittery and anxious at the prospect of AI taking over the job market and humans being replaced by Chatbots and large language models. 

However, to assume that economically developing nations such as India may bear the brunt of the rise of Artificial intelligence as against higher income countries, may not be entirely accurate. In fact, global brokerage firm Bernstein challenges this common view and says developed nations will be hit harder with the AI impact. 

“The most pervasive AI storyline says knowledge industries will be hit hardest, entry-level roles will disappear first, and low-cost labor economies—India, Indonesia, Mexico—face the greatest threat because their growth is built on arbitrage. Yet these claims reveal a striking disconnect,” Bernstein highlighted in its note. 

It went on to explain that the impact would be stronger on nations like United Kingdom and United States, as they have more exposure to Information and knowledge sectors.

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“Information and knowledge sectors account for only 1–4% of employment in most middle-income economies versus 6–10% in high-income ones, and the gap in GDP share is even wider: services contribute about 50–60% of output in middle-income countries (median 55%), compared with more than 70% in advanced economies,” the research firm outlined. 

Another aspect that comes into play to further Bernstein’s argument is the country-specific wage gaps for the same roles; A typical software engineer earns around $10,000 a year in India, compared to roughly $130,000 in the US and 80,000 dollars in the UK.

This is applicable across any white collar profession where AI’s growth has been the most conducive, including accountants, paralegals, data analysts and others. Therefore, for any firm, it would make sense to replace the higher paid employees with AI to maximise their savings. 

“Replacing a 10,000-dollar worker with AI yields only marginal savings; replacing a 100,000-dollar worker is transformative for most organisations,” Bernstein said. 

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In conclusion, given the current service-sector employment and existing income inequality the research firm estimates an average 10% hit to national income in middle-income economies, compared to about 22% in high-income economies.

Notably, what AI may end up achieving is a narrower gap between the rich and middle economies in two separate ways and become “the great leveller”, Bernstein points out. 

“The burden will fall disproportionately on the next-richest 9–10% income cohort after the top 1%. In that sense, AI becomes a leveller along two dimensions: narrowing income gaps between high- and middle-income countries, and flattening income distributions beyond the top 1% within economies,” the research firm stated. 

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