AI Adoption Will Cause Workforce Reorganization

By Nicole Lewis May 26, 2022
group working on computer

​Human resource executives at companies that are investing in artificial intelligence (AI) technology can expect to scout for higher-skilled IT workers as demand for their skills rises. They will also be faced with managing labor composition disruptions and workforce reorganizations as more companies use AI's predictive technology capabilities to solve business problems.

In a recently published research paper titled Firm Investments in Artificial Intelligence Technologies and Changes in Workforce Composition, professors from Columbia University; the University of California, Berkeley; and the University of Maryland pored over almost a decade's worth of data and found that AI adoption will change the employment landscape as well as HR managers' priorities.

Researchers examined changes in labor outcomes from 2010 to 2018 using several datasets, sourced from Cognism Inc., a London-based sales intelligence firm.

Researchers also used 180 million job postings provided by Boston-based Burning Glass Technologies, an analytics software company that conducts research on labor market trends. The data details job descriptions and specific requirements such as years of education and experience.

Additional data sources were wage and education data grouped by commuting zone from the U.S. Census Bureau's American Community Survey and wage and employment data grouped by industry from the U.S. Census Quarterly Workforce Indicators. From Compustat, researchers obtained firm-level data on operational variables such as sales, cash and assets.

The research shows that when companies invested in AI, there was a corresponding demand for workers who possess undergraduate and graduate degrees in the science, technology, engineering and mathematics (STEM) fields.

"As firms invest in AI, they tend to transition to more educated workforces, with higher shares of workers with undergraduate and graduate degrees and more specialization in STEM fields and IT and analysis skills," the report stated. "Furthermore, AI investments are associated with a flattening of the firms' hierarchical structure, with significant increases in the share of workers at the junior level and decreases in shares of workers in middle-management and senior roles."

Junior-level workers are those with less than two years of experience, or have two to five years of experience but do not manage anyone directly.

A junior-level worker entering the workforce will know more about how to use AI data to make predictions, said Alex He, co-author of the report and assistant professor of finance at the Robert H. Smith School of Business at the University of Maryland. This is a shift from the days when managers were the ones who analyzed AI data, gained insights and made decisions accordingly.

In short, AI empowers junior-level workers—a shift that has implications for the worker/manager relationship.

"We found that AI is making the firm less top-heavy and flatter. It's not surprising, because AI has the ability to make predictions and that makes the entry-level workers more capable to make decisions. They can do more, and there is less need for middle managers," He said.

As companies that invest in AI operate with more employees in entry-level or single contributor roles and fewer workers in either middle management or senior positions, He predicted that several issues will arise that HR executives will be forced to manage in a restructured workforce.

"For example, right now, entry-level employees are paid less and managers are paid more, but if there are fewer managers, you can afford to pay the entry-level workers more to attract the required skills," He said.

Another significant finding is that there are some jobs that can't be replaced no matter how much investment is made in AI technology.

"Interestingly, firms that invest more heavily in AI do not reduce their demand for some of the skill groups that are most often predicted to be replaced by AI, such as customer service, HR, and legal," the report stated.

James Hodson is a co-author of the report. He is the chief science officer at Cognism and chief executive officer at the AI for Good Foundation, a nonprofit organization headquartered in Berkeley, Calif. Hodson said HR managers have an opportunity to use AI to hire highly skilled people, to reskill and train people faster, and to build more productive teams. AI also allows HR managers to track data on employees, which can help HR managers understand workers better.

However, the report's findings present both difficulties and opportunities for HR managers who will be asked to oversee an AI-induced workforce reorganization while maintaining or even advancing the competitive advantage of their companies.

"In general, HR executives need to be aware of managing organizational change, especially when it relates to the adoption of AI technology. Essentially, AI is bringing the HR function to the forefront of the business," Hodson said.

Nicole Lewis is a freelance journalist based in Miami.



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