Economy Matters

For two days in early October, a roomful of economists, business executives, academics, and monetary policymakers gathered at the Federal Reserve Bank of Atlanta to discuss how the future economy might be affected by emergent disruptive technology and workplace trends.

Attendees at the sixth Technology-Enabled Disruption conference looked ahead to a time when artificial intelligence (AI) may be pervasive, big data may expand exponentially, and "working from home" may no longer be considered by some as "shirking from home." The Atlanta Fed and its partners track developments like these in the workplace because of their possible ramifications for the Fed's dual mandate to promote maximum employment and stable prices.

In his opening remarks, Atlanta Fed president Raphael Bostic addressed the effects of technological innovation on the economy. Although central banks "often are not well equipped" to directly address these effects, Bostic said, "we can help bring attention to them, advance conversation about them, and hone the best thinking about how to develop solutions. That's actually why we're gathering here."

The Atlanta Fed, in collaboration with the Federal Reserve Banks of Boston and Richmond, hosted the 2024 conference. (On the conference agenda, you can click the link next to each session to see recordings.)

Fed governor Lisa Cook drew from her years of experience evaluating economic innovation to deliver opening keynote remarks. Cook's central point was her expectation that AI "is likely to become a general-purpose technology—one that spreads throughout the economy, sparks downstream innovation, and continues to improve over time." Cook said AI is affordable to small businesses, and adoption rates accelerated in 2022. "I wouldn't say things were plodding along [before] 2022—2022 was just a year of take-off, a year that generative AI was being discussed and deployed and the conversation changed as well."

The conference's first day ended with a moderated conversation with presidents of three Federal Reserve Banks: Tom Barkin of Richmond, Bostic, and Susan Collins of Boston. They addressed a range of topics, including when emergent technological disruption will appear in productivity data and the effect of such technology on the transmission of monetary policy. They also spoke about remote work and its potential influence on wages. During the latter exchange, all three presidents said they're keeping an eye on the evolving trend. Here are snippets from that conversation:

• Barkin: "Somewhere between the availability of hybrid work, or the prospect of hybrid work, has kept more people engaged in the workforce for longer and I think that is an outstanding outcome. . . . The market's going to work this out."
• Bostic: "I immediately thought of the people who don't have the luxury of working remotely. . . . We've been thinking hard about how do you do the compensation on the other side if you're not going to cut the wages for people who are working remotely, how do you increase the wages to acknowledge the folks who can't do remote? We need to keep those jobs comparably appealing."
• Collins: "One question is what things we are measuring when we're looking at how the balance is working out. I think flexibility is extremely valuable—[the] idea of being able to have more comfort, and experiment with that flexibility across different sectors and over time.

The conference featured three panel discussions. Each topic was conducted in two parts—one for business leaders and one for researchers. Below are key takeaways from the discussions.

AI, Big Data, and the Path Ahead for Productivity

Business leaders described jaw-dropping declines in the cost of AI, its role in performance measurements, and issues of equity and inclusion. "A bank technology that cost $60,000 in 2023 now sells for $6,000," said Michael Abbott, senior managing director with Accenture. Kent Cunningham, chief technology officer with Microsoft said, "everyone finds their own way to measure productivity" that's been enhanced by numerous platforms. Denise Quarles, head of strategy for Siemens USA, spoke about the importance of equity and inclusion for workers while managers consider implementing new technology.

In the discussion among researchers, Laura Veldkamp, a professor at Columbia Business School, stated that "AI is the industrialization of knowledge production." Daniel Rock, an assistant professor at the Wharton School, said AI is so new that its impact on the workforce is hard to predict. He suggested some job categories that may be affected could be "areas where we maybe can design some policies." Martin Beraja, an associate professor at Massachusetts Institute of Technology, said the development of technology is led by innovators who develop first and then settle disputes over property rights through litigation, legislation, or regulation.

Technological Disruptions in Insurance and Credit Markets

Two business leaders in the credit arena said their firms don't use generative AI but do use predictive AI to help workers perform tasks and predict credit and fraud risk. Brad Jiulianti, executive vice president with Capital One, said human-centered customer service can be improved with help from AI. Equifax focuses on "what problems we are trying to solve" when the firm reviews new tools, said Raghu Kulkarni, who serves as the organization's chief AI officer. Federal regulators expect all financial institutions to comply with all relevant laws regardless of the technology they use, said Atur Desai, deputy chief technologist for law and strategy at the Consumer Financial Protection Bureau.

Three researchers discussed their views on the role of big data in managing risk in health care and credit environments. Benjamin Handel, associate professor at the University of California, Berkeley, said big data has fueled a push for vertical integration in health care businesses that navigate stringent privacy laws. Scott Nelson, assistant professor at the University of Chicago Booth School of Business, said the use of big data in credit risk analysis raises the question about the degree to which innovation should address existing inequalities in access to credit. Ansgar Walther, assistant professor at Imperial College London, said the constraints of regulatory institutions need to be part of the conversation about technology adoption.

Shifts in How Work Gets Done: Remote Work, Outsourcing, and Future Technological Disruption

Creating opportunities for workers to interact has become very important no matter if workers are fully remote, hybrid, or in an office, three business leaders said. Randstad North America allows flexibility in work locations even while it recognizes that "when trying to drive innovation, you really want to be in a room together," said Alan Stukalsky, the company's chief digital officer. Heidi Kobylski, vice president for Microsoft's US Federal Government Civilian business unit, said remote work is standard, but "we make it mandatory" to come to the office periodically and participate in networking activities. Joanne Smith, chief people officer at Delta Air Lines, said everyone with an office job is expected to be in the office four days a week and "we're doing a lot more social activities."

Three researchers described the dynamism of the workplace and hiring practices. Office workers seem to have greater career opportunities than those who work from home, said Emma Harrington, assistant professor at the University of Virginia. Claudia Macaluso, an economist at the Richmond Fed, said technology enables manufacturers to outsource a growing number of jobs to temporary workers who are hired on a short-term basis. Harvard Business School professor Alberto Cavallo said wages for remote work are based on average wages in the worker's location. Wherever their location—be it offshore or within the United States—workers face large wage gaps.

Nicholas Bloom, a Stanford University professor and longtime collaborator with Atlanta Fed researchers, delivered the closing keynote address. He also participated in a discussion with the Atlanta Fed senior economist Jonathan Willis. One of Bloom's highlights was a graph that showed employees value hybrid work as much as an 8 percent salary increase. In response to Willis's question about how to evaluate the performance of remote workers, Bloom said: "It's what you achieve. That's what I would focus on. That's always been good management."

David Pendered

Staff writer for Economy Matters