And specifically, what does this imply for AI? There are two theories of equilibrium unemployment — search frictions, and efficiency wages — and they actually give diametrically opposite predictions for when search frictions in finding a new job fall. I conclude that frictions are the more likely explanation, but that LLMs may actually increase unemployment if our ability to apply exceeds the ability to sort.
Why Does Unemployment Happen?
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And specifically, what does this imply for AI? There are two theories of equilibrium unemployment — search frictions, and efficiency wages — and they actually give diametrically opposite predictions for when search frictions in finding a new job fall. I conclude that frictions are the more likely explanation, but that LLMs may actually increase unemployment if our ability to apply exceeds the ability to sort.