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Yale economist says AI could cut wages but raise purchasing power if it lowers cost of goods
AI may cut wages without hurting living standards if it makes goods cheap enough to offset smaller paychecks, Yale economist Pascual Restrepo says. The key is how broadly the technology spreads across industries.
AI Could Cut Wages Without Cutting Living Standards, Yale Economist Says
Artificial intelligence may lower worker pay without reducing living standards, according to Yale economics associate professor Pascual Restrepo. The outcome depends on whether AI makes goods and services cheap enough to offset smaller paychecks.
"People have the wrong intuition when they say that if AI can do my job for ten dollars an hour, then my wage falls to $10 and my life is terrible," Restrepo said in a recent discussion with Yale University's Tobin Center for Economic Policy.
The distinction matters for HR professionals managing workforce planning and compensation strategy. What workers earn in dollars may matter less than what those dollars can buy.
Purchasing Power Over Paycheck Size
If AI becomes capable enough to lower costs across many sectors, workers could maintain or improve their standard of living even with reduced wages, Restrepo said. A worker earning less but buying more goods at lower prices ends up in the same or better financial position.
"A world where AI can do research or teaching at that cost is a world where AI is extremely capable and can produce many other goods and services cheaply," he said.
How Automation Quietly Reduces Pay
Restrepo's research with MIT economist Daron Acemoglu reveals a less visible mechanism: automation often targets jobs that pay workers more than alternative work available to them. When those tasks get automated, that wage premium disappears.
The Federal Reserve Bank of Dallas released an analysis in February finding that AI's actual effect on workers depends on whether the technology replaces tasks or makes workers more productive at existing tasks. Early data suggests both are happening simultaneously.
Clara Shih, former Salesforce AI CEO, described this pattern on social media: "Wage resets are a more common, insidious, and often equally disruptive way that new technologies affect workers."
Scale Determines the Outcome
The critical variable is how broadly AI spreads. If the technology lowers costs across many industries, workers see relief through cheaper goods and services. If AI affects only certain jobs, those workers face wage cuts without offsetting price decreases elsewhere.
Restrepo characterized the current labor market as a "wait-and-see environment" because companies are still experimenting with AI deployment.
HR leaders should prepare for multiple scenarios. AI for Human Resources training can help professionals understand how these dynamics may reshape compensation, workforce planning, and talent retention strategies. For executives, an AI Learning Path for CHROs addresses workforce analytics and talent management in this shifting environment.